Moody’s agency maintains Brazil’s credit rating, but changes outlook to ‘positive’ | Economy

Moody’s agency maintains Brazil’s credit rating, but changes outlook to ‘positive’

The risk rating agency Moody’s announced this Wednesday (1st) that it maintained Brazil’s credit rating at Ba2 level, but changed the assessment perspective from “stable” to “positive”.

Brazil’s current rating in Moody’s is Ba2 – which puts the country in the so-called “speculative grade”, indicating a greater risk for foreign investments.

When indicating a positive bias in the analysis, the Moody’s signals that it may raise the credit rating in the future. Representatives of the agency met with the Minister of Finance, Fernando Haddad, on the 23rd, but there were no announcements after the meeting.

“Moody’s assesses that the prospects for real growth in Brazil’s gross domestic product (GDP) are more robust than in pre-pandemic years, as a consequence of the implementation of structural reforms in several governments, as well as the presence of institutional barriers that reduce uncertainty about the future direction of public policies”, says the agency’s note.

The statement says that “stronger growth” and “fiscal consolidation” can stabilize the debt burden on public accounts, but points out that “there are risks” to the continuation of this improvement.

“The affirmation of the Ba2 rating is based on Brazil’s still relatively weak fiscal strength, given the country’s high level of debt and its weak debt repayment capacity, which remains sensitive to economic or financial shocks,” says Moody’s.

The credit rating is used by investors to assess which countries or companies the investment is safer in. If the note is lower, the risk is greater – which, in economics, means charging higher interest rates.

Some European or North American funds, for example, only invest in bonds from investment grade countries — the highest grades. In other words: having a good rating helps attract these international resources.

In Moody’s classification, Brazil is currently “two steps” away from investment grade. The same happens in the ratings of agencies S&P and Fitch (see below).

The country received investment grade from Moody’s between 2009 and 2015, but has maintained a Ba2 credit rating since then.

“The Ministry of Finance reaffirms the country’s commitment to a sustainable trajectory for public accounts, combining efforts to improve revenue collection and contain the dynamics of expenses”, says the note released by the government.

“The government’s better fiscal balance will lead to a reduction in interest rates and an improvement in credit conditions. In this way, conditions will be created for the expansion of public and private investments and the generation of jobs, increased income and greater economic efficiency , essential elements for the economic and social development of Brazil”, continues the ministry.

In addition to Moody’s, there are two other main risk rating agencies that grant (or not) the so-called investment grade to global economies: S&P Global Ratings and Fitch.

The three firms adopted similar trajectories when evaluating the security of investing in Brazil in recent years.

S&P and Fitch granted investment grade to Brazil a year before Moody’s, in 2008 – and also removed the grade a year earlier, in 2014.