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
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 credibility.
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
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 full comments