Index signals to foreign investors which countries are safe for financial investments; Brazilian investment grade has been the same since 2016
The risk rating agency Moody’s pointed out this Wednesday (May 1, 2024) that the Brazilian economy has a “weak fiscal soundness” and “sensitive” due to the country’s high debt and little capacity to pay off debts.
The statement further said that the debt burden is expected to increase in 2024-25 until stability can begin over the years.
Brazil’s current index is Ba2, which indicates a greater risk for foreign investments. The Brazilian investment grade has been the same since 2016.
“The Ba2 rating reflects fiscal strength that is still relatively weak, given Brazil’s spending rigidity, high debt burden and weak debt repayment capacity, which remains sensitive to economic or financial shocks”wrote about Brazil.
The note is used by investors to assess the security of financial investments in countries. If it is low, it indicates that the risk is greater. In other words, it may have higher interest rates.
Changed from stable to positive
Despite having maintained the Brazilian rating at Ba2, Moody’s changed the perspective of the “stable” for “positive”.
According to the National Treasury, this decision is the first move by Moody’s since 2018, when the outlook changed from negative to stable.
According to the agency, the new change “reinforces the improvement in the credit rating trajectory seen since 2023”with the increase in rating by Standard & Poor’s and Fitch. The 3 institutions make up the most reputable risk agencies on the market.
The investment grade acts as a certificate that countries are not at risk of defaulting on their public debt. Below this category is the speculative grade, whose probability of failing to pay the public debt increases as the grade decreases.
Credit notes serve as a reference for interest rates on public bonds, which represent the cost for the government to borrow money from investors.
On social media, the Minister of Finance, Fernando Haddad, stated that Moody’s review is recognition of the change in the improvement of Brazilian economic prospects.
“This has to do with the joint work of the three Powers, which placed the country’s interests above surmountable differences. Even with the momentary deterioration of the global economy, Brazil is moving forward and recovering economic, social and environmental credibility. We have a lot to do!”he said.
By keeping the rating Ba2, Moody’s indicates risks given Brazil’s high level of debt. The agency highlighted the importance of maintaining the credibility of the new fiscal framework for the “reduction of uncertainty regarding the fiscal trajectory”.
With information from Agência Brasil.
Tags: Moodys sees weak fiscal solidity Brazil economy sensitive shocks
