Credit rating agency Fitch Ratings kept Brazil’s long-term foreign currency issuer default ratings (IDR) at BB, below investment grade, it announced. The country’s outlook is negative.
“Brazil's ratings are constrained by the structural weaknesses in its public finances, high and rising government debt burden, weak growth prospects, weaker governance indicators compared with peers, and repeated episodes of political instability that undermine policy-making and have negative implications for the economy,” reported the credit rating agency, which also affirmed the nation’s local IDR at BB.
“These weaknesses are counter-balanced by its economic diversity and entrenched civil institutions, with its per capita income higher than the 'BB' median. The country's capacity to absorb shocks is bolstered by its flexible exchange rate, robust international reserves position, a strong net sovereign external creditor position, and deep and developed domestic government debt markets,” it added.
Fitch explained the negative outlook reflects “continued uncertainties around the outlook for Brazil's economic recovery, the prospects for medium-term public debt stabilization given large fiscal imbalances, and the progress on the legislative agenda, specifically pertaining to the social security reform.”
The agency also added that recent political events involving recently installed president Michel Temer have “increased uncertainty regarding the reform process and could hurt broader confidence and economic recovery prospects.”
Fitch estimated the Brazilian economy should grow 0.5 percent in 2017 and 2.5 percent in 2018, “although downside risks remain.”