Fitch downgraded Brazil to BB-, three notches below investment grade and the same as Bolivia and Vietnam. The outlook is stable, Fitch said.
The decision reflects Brazil’s “persistent and large fiscal deficits, a high and growing government debt burden and the failure to legislate reforms that would improve the structural performance of public finances,” Fitch said in a statement on Friday.
Brazil was downgraded further into junk in January by S&P Global Ratings, which also cited slower-than-expected progress on the government’s financial revamp measures. The administration this month scrapped a plan to vote on the controversial pension bill after struggling for months to gather enough support.
“At this point, it is looking quite unlikely that the current administration will be able to pass a meaningful social security reform to improve Brazil’s fiscal outlook over time,” said Danny Fang, an analyst at BBVA in New York. Pimco said last week that the vote’s delay is one reason the fund manager doesn’t include Brazil on a list of “reform stories.”
The government expects Moody’s to also downgrade the nation’s sovereign debt, according to a person close to Finance Minister Henrique Meirelles, who asked not to be identified as the matter isn’t public.
The decision “represents an important setback in the reform agenda that undermines confidence in the medium-term trajectory of public finances and the political commitment to address the issue,” Fitch said. October elections further cloud the outlook, Fitch said.
Even so, some investors said they were willing to overlook the latest downgrade and focus instead on growth prospects for Latin America’s largest economy. The Ibovespa is up about 10% since the S&P downgrade last month.
“Both growth and fiscal trends will be better in 2018 than Fitch is expecting, so I’m not worried,” said Scott Piper, head of Latin American equities at Itau Unibanco Holdings SA in New York.
Spokesmen for Brazil’s finance ministry, presidency, central bank and lower house speaker didn’t immediately reply to emails seeking comment on the downgrade.
