Fitch agency raises Brazil's credit rating from BB- to BB
According to the new classification, Brazil shows signs of economic strength, and investors are showing greater confidence in its financial capacity.
The credit score assesses the probability that a country will be able to pay its debts - Photo Reproduction/Internet
A rating agency Fitch improved Brazil's credit rating, raising it from BB- to BB, and maintained the stable outlook. This change represents a significant advance, since the country had been downgraded to BB- in 2018, due to the crisis in public accounts and the non-approval, at the time, of the pension reform in the government of Michel Temer. Now, with this positive review, Brazil demonstrates signs of economic strength and greater confidence of investors on their financial capacity.
"Brazil's update reflects better-than-expected macroeconomic and fiscal performance amid successive shocks in recent years, proactive policies and reforms that supported it, and Fitch's expectation that the new government will work towards further improvements," says the statement from Fitch.
Risk rating
Credit assessment, also known as risk rating, rating, risk classification, risk assessment, risk notation or financial risk rating, aims to assess the credit worthiness of debt issues of a company or government. It's a similar approach to credit ratings for individuals.
This ranking is determined using notes represented by letters and signs arithmetic, assigned based on an analysis performed by major risk rating agencies. These agencies assess the likelihood that the entity will be able to pay its debts adequately.
Fitch's new rating
The new classification still indicates a speculative grade, which, according to the risk agencies, means that Brazil is now less vulnerable to risk in the short term, although it still faces uncertainties regarding adverse financial and economic conditions. However, the agency highlights that Brazil has progressed in important reforms to face the economic and fiscal challenges since the last downgrade. Among these reforms, the approval of the Social Security reform and the conquest of the autonomy of the Central Bank during the government of Jair Bolsonaro stand out. Furthermore, during Luiz Inácio Lula da Silva's tenure, a sound fiscal framework and significant tax reform were implemented.
The report emphasizes that, although Lula defends the departure from the liberal economic agenda of previous governments, the agency foresees that possible deviations will be limited by pragmatism and by institutional control mechanisms. In addition, the agency recognizes that, although some reforms proposed by the new government are still in progress in Congress, the Lula government managed to ensure governance to advance its political and economic agenda.
Economic growth
The Fitch agency revised its economic growth projection for the year 2023, increasing it from 0.7% to 2.3%. According to the agency, this adjustment is due to the healthy recovery of the country, even in the face of the increase in the basic interest rate that occurred during the pandemic, as well as the upward growth of the labor market.
Impact
Fitch's agency lists several factors that positively or negatively impact Brazil's credit note. According to the agency, in addition to the significant advances in fiscal control over the last few years, the country's ratings are favored by a large and diversified economy, a high per capita income, a robust domestic market and a considerable cash cushion that sustains the flexibility of sovereign finance.
In addition, the high proportion of debt in local currency, the ability to absorb economic shocks, guaranteed by a flexible exchange rate, as well as robust international reserves and solid position vis-à-vis foreign creditors also contribute to the agency's positive assessment in regarding the sovereignty of the country. On the other hand, according to Fitch, the country's rankings are mainly constrained by high government debt, fiscal inflexibility, limited economic growth potential and relatively low scores on governance.
