Moody’s signals change of credit note if Country does not resume fiscal adjustment in 2021


Samar Maziad, vice president and senior rating analyst for Brazil at Moody’s Investors Service, said yesterday that the risk rating agency expects some progress on the reform agenda later this year or early 2021, as a way to face the effects generated by the pandemic, such as the rapid rise in public debt.

“The important thing is that they move forward,” she said, adding that the country’s current rating – announced in May – already considered an increase in debt to cope with extraordinary expenses with the pandemic. But it also anticipated an effort to resume fiscal adjustment from next year.

“The maintenance of the rating incorporates this increase (in expenses), but also foresees the resumption of fiscal adjustment in 2021”, said Samar, in an event organized by the agency. “If support for reforms declines, there will be a negative impact on our scenario.”

According to the criteria used by Moody ?? s, the so-called sovereign credit note of Brazil is “Ba2”, with a “stable” outlook. The country is two degrees below the floor to be considered investment grade again – an important indication for foreign investors when distributing their resources.

Brazil first achieved its investment grade status in 2008. Seven years later, S&P was the first to remove the seal of good pay, followed by Fitch and then by Moody ?? s.

Moody’s projects that the ratio between gross public debt and Gross Domestic Product (GDP), which was 75.8% in 2019, will exceed 97% next year. “We expect economic growth to recover in 2021. However, structural reforms and fiscal adjustment will be important for Brazil to achieve sustainable growth,” said the analyst. She added that she expects the spending ceiling to be maintained, a rule that conditions the level of spending on inflation. “The spending ceiling is Brazil’s main fiscal anchor.”

Regarding the maintenance of extraordinary stimuli, such as emergency aid, she said that within the spending ceiling there is limited space to increase expenses. Thus, the idea of ​​the Minister of Economy, Paulo Guedes, of unifying social programs may require compensatory measures.

Also present at the event, the director of ASA Investments and former secretary of the National Treasury, Carlos Kawall, said that, in the last two weeks, he was “more excited” with the prospects that the spending ceiling will not be exceeded.

According to Kawall, after some signs from the government about the financing of the Citizen’s Income, the negative reaction of the markets was noticed by the economic team, who again reinforced that the rule will be maintained. “The signal is that the government will respect the ceiling for financing social programs.”

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