“Eskom and difficulty in implementing highway tolls to pay back government-guaranteed debt issued by the national roads company suggest that the government’s efforts to distance itself from its state entities’ finances will take more time and could still be more costly than planned”, Moody’s said in a Business Day report.
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That was the Palácio do Planalto’s reaction to the decision made by the risk assessment agency Moody’s to maintain Brazil’s investment grade and change its perspective from negative to neutral for the next review, despite reducing the Brazilian credit rating.
The situation “will prevent the authorities from achieving primary surpluses high enough to arrest and reverse the rising debt trend this year and next, and challenge their ability to do so thereafter”, Moody’s said. Firstly, the country’s weaker-than-expected economic growth.
“Even though Moody’s expects the economic environment to remain poor and political dynamics to remain relatively unstable in 2015 and 2016, the rating agency does not now expect so severe a deterioration in debt metrics as to threaten Brazil’s investment-grade rating”, the agency said in a statement.
Moody’s is not predicting any further ratings downgrades in the near future.
The possibility that Brazil could lose the investment grade rating has spooked politicians as well as investors.
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Indeed, the credit rating agency sees Brazil’s GDP growth rate expanding to 2% during the second half of President Dilma Rousseff’s administration while the country’s primary fiscal surpluses should also reach 2% within the same period. It is very likely that by Q1 16 at the latest, the agency will change the outlook to negative, as these numbers for growth and the fiscal balance are not expected to be achieved.
