As geopolitical risks ripple across the world, Brazil’s economic outlook and, consequently, its credit score are increasingly influenced by the successful implementation of a new fiscal framework, according to Moody’s Investors Service. Despite global concerns, the domestic progress of the Brazilian economy remains the pivotal factor shaping the nation’s creditworthiness, stated senior analyst Samar Maziad in a recent interview.
Brazil’s credit rating has stood at Ba2, which is two notches below investment grade, since 2016, putting it on par with countries like Vietnam and South Africa. However, the prospect of an upgrade hinges on the effective deployment of the new fiscal framework and a strong commitment from the government to adhere to its fiscal targets, Maziad emphasized.
“Brazil is a large, very closed economy, so the growth dynamics really depend on domestic drivers, like consumption and investment,” noted Maziad. “We are looking at the implementation of the new fiscal framework and growth performance, and those are key elements for a more positive scenario.”
The fiscal bill, which has received approval from lawmakers, aims to allay concerns about government spending and reassure investors about the government’s dedication to fiscal discipline. Nevertheless, a significant risk arises if the economy experiences a downturn, potentially leading to reduced revenues and complicating the government’s path toward achieving its fiscal objectives, cautioned Maziad.
While Moody’s has maintained Brazil’s credit rating unchanged this year, both Fitch Ratings and S&P Global Ratings have adopted more optimistic positions. Fitch upgraded Brazil’s rating to BB from BB- in July, bringing it within two notches of investment grade. In June, S&P altered its outlook on the country’s rating from stable to positive.
“The world is changing. We are seeing other countries with higher political risk,” Maziad acknowledged. “But Brazil is two notches below investment grade, so we must take it one step at a time.”
As Brazil grapples with the challenges of fiscal reforms and global uncertainties, its credit rating remains a critical barometer of its economic stability and attractiveness to international investors. The nation’s journey toward securing an investment-grade rating continues to be closely watched by both domestic and international observers.
Photo Source ( Centralbanking.com)
19th October, 2023
By: Delino Gayweh
Serrari Financial Analyst
