“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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The agency also predicted that government debt would continue to deteriorate, but said that Brazil retained “a number of credit strengths that are reflected in its Baa3 rating”.
Brazil’s government last month slashed a key fiscal target as it struggles to boost tax revenue and get spending under control.
MOODY’S has encouraged government to stop financially rescuing state-owned enterprises (SOEs) and to let them be financially self-reliant in order to manage its fiscal consolidation.
Combined, these three factors will prevent Brazil from achieving primary surpluses high enough to reverse projected deterioration in debt-to-GDP in 2015 and 2016. This has been mitigated to an extent by its outlook being reclassified as “stable” up from “negative” in its prior Moody’s Baa2 rating.
Moody’s Investors Service cut Brazil’s credit rating to near-junk status on Tuesday but assigned a stable outlook to the new rating, signalling that the country’s coveted investment grade status is safe in the short term.
“It was good that Moody’s didn’t cut by two notches, and has a stable outlook”.
The possibility that Brazil could lose the investment grade rating has spooked politicians as well as investors. In 2011, one dollar was about 1.5 Brazilian reais.
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The weak economy, and a spreading corruption scandal involving state-controlled oil company Petró leo Brasileiro SA, have driven President Rousseff’s approval ratings to record lows.
