Standard & Poor’s has cut Brazil’s credit rating by one notch, citing the government’s unclear policy signals as it faces a weaker fiscal situation and slower growth.
S&P put Brazil’s rating at BBB-, the lowest level for investment grade debt, and called the outlook stable.
S&P said the rating cut reflects “slippage” in the government’s fiscal balance and the prospects that slow growth over the coming years will leave the government less able to strengthen the balance.
It also cited weakening external accounts and “a constrained ability to adjust policy ahead of the October presidential elections”.
Both cyclical and structural factors are behind the growth outlook, S&P said, pointing to low investment, only 18 per cent of gross domestic product (GDP) last year.
“Combined, these factors underscore the government’s diminished room for manoeuvre in the face of external shocks,” it said.
At the same time, it said, net external debt is rising but remains “manageable”.
“Brazil’s general government debt burden is high, but its composition remains solid … These factors underpin the low-investment-grade ratings.”
S&P warned that even after the presidential election, the prospects for the government to make needed policy adjustments were not strong.
Despite recent budget cuts, the government will find it difficult to achieve its surplus target of 1.9 per cent of GDP, given slow growth and continued tax exemption policies.
S&P forecast 1.8 per cent growth this year, picking up slightly to 2.0 per cent in 2015.
“We still expect overall private-sector investment to remain lacklustre given persistent negative business sentiment and a wait-and-see attitude associated with the election,” it said.
Also putting a hold on investment as the risk of energy rationing and the impact of a sharp rise in interest rates last year, S&P said.