Moody’s reaffirms Brazil’s risk rating and improves outlook to ‘positive’

This Wednesday, 30th, Moody’s reaffirmed Brazil’s credit risk rating at Ba2 and changed the country’s outlook from “stable” to “positive”, according to a statement from the rating agency.

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In the text, the agency assessed that the prospects for real growth (discounting inflation) of Brazil’s Gross Domestic Product (GDP) are more robust than in the pre-pandemic years, “supported by the implementation of structural reforms in multiple administrations, as well as by the presence of institutional protective barriers that reduce uncertainty surrounding future policy direction.”

According to Moody’s, the change in outlook to “positive” is supported by the assessment that “more robust growth, combined with continued, albeit gradual, progress towards fiscal consolidation, could allow the stabilization of Brazil’s debt burden” .

“Moody’s expects real GDP growth to average around 2% in 2024-25 and over the medium term, well above the pre-pandemic average annual rate of -0.5% seen in 2015-19,” it said. the agency.

“The more robust GDP growth in recent years and in the short and medium term is, in part, the result of structural reforms implemented over successive administrations,” he added in the statement.

However, the agency pointed out that there are risks to the government’s execution of budget consolidation.

When discussing the maintenance of the Ba2 rating, Moody’s cited Brazil’s still high debt.

“The Ba2 rating reflects fiscal strength that is still relatively weak, given the rigidity of Brazil’s spending, the high debt burden and the weak debt repayment capacity, which remains sensitive to economic or financial shocks,” stated the agency.

“Moody’s expects the debt burden to likely increase slightly in 2024-25, before stabilizing within a few years,” it added.

One of the main global credit rating agencies, Moody’s has maintained a Ba2 rating for Brazil since February 2016, which places the country in the “speculative grade” group.

Government reaction

In a note, the Ministry of Finance celebrated the change in perspective for the country’s rating.

“This decision is the first move by Moody’s since 2018, when the outlook changed from negative to stable, and reinforces the improvement in the credit rating trajectory seen since 2023, with the rating upgrade by both S&P and Fitch”, the ministry said, citing the two other global risk rating agencies.