Moody’s issues warning on Brazil
Ratings outlook downgraded as Mantega insists ‘no change’ to growth model
Moody's Investors Service has lowered its outlook on
Brazil's Baa2 credit rating to stable from positive, citing
worsening debt and investment ratios as the economy cools.
"Even though there are signs that the Brazilian economy may
be starting to recover, Moody's view is that, if and when the
upturn materializes, it is unlikely that it will be strong
enough to restore a positive trend in Brazil credit metrics, a
condition necessary to merit a positive outlook," the agency
said in a statement.
Finance minister Guido Mantega told LatinFinance
last month there would be no change to an economic policy
approach a growing number of experts have blamed for
exacerbating a growth slowdown.
"We are not looking at a new economic or growth model, but
the continuation of an already successful growth model,"
Former IMF fiscal affairs director
Teresa Ter-Minissian told LatinFinance that
without the reforms to strengthen fiscal policy while boosting
investment and competitiveness "a credit downgrade [by S&P]
is not only not farfetched, in fact it's quite likely."
Standard & Poor's in June placed Brazil's triple-B
credit rating on negative outlook, citing persistently poor GDP
expansion, weaker fiscal policy and a decline in government
Moody's pointed to Brazil's investment-to-GDP ratio, which
sank to 17.6% last year, from 20.2% in 2011. That ratio is not
expected to exceed 20% during in 2013. It also cited the
country's debt-to-GDP ratio, which, at 60%, is higher than the
45% average for similarly rated sovereigns.
The agency said the two measures confirm Brazil's economy
remains in a low-growth period. It expects GDP will increase at
annual rates of just over 2% in 2013 and 2014.
Moody's in its statement also flagged poor reporting of
government accounts, as well as continued government borrowings
to support increased lending by public banks.
The agency would consider moving the outlook on Brazil's
sovereign rating back to positive, or upgrading, if: government
debt ratios declined; debt affordability, as represented by the
ratio of interest payments to government revenues, improved;
GDP growth rates approached trend growth of 3.5%; and if
investment ratios rose materially supported by increased
infrastructure spending. LF
Click here to read Brazilian finance minister Guido Mantega's