Moody’s Investors Service recently announced that it has downgraded Brazil’s government bond rating from Baa2 to Baa3 as well as changed the rating’s outlook from negative to stable.
There were several factors leading up to these changes.
First, Brazil’s economic performance has been weaker than originally expected. The government expenditures have shown related upward trends, and the nation has also shown a lack of political consensus for fiscal reforms that would stop authorities from gaining primary surpluses. These surpluses can be high enough to reverse or halt the rising debt trend for 2015 as well as 2016.
Secondly, Brazil’s government debt affordability and debt burden has shown signs that they will continue to decline materially for the rest of 2015 as well as 2016. These rates are related to Moody’s previous expectations that show Brazil’s Baa-rate peers are better off. Moody’s has stated that it estimates the rising debt burden will only grow into a stable state by the end of the nation’s current administration.
Moody’s states that Brazil’s credit strengths are shown in the nation’s Baa3 rating and its large, diverse economy. The nation is capable of handling external financial shocks thanks to its ample international reserve buffers.
The Brazilian government has a balance sheet with limited foreign currency debt exposure, and it also has limited exposure to nonresident debt holdings compared to other countries at its level.
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