Standard & Poor’s Rating Services has downgraded Brazil’s foreign currency rating from investment grade to ‘junk’ status on concerns over political challenges.
The ratings agency cut the credit rating from BBB-, which is the lowest classification of investment grade, to BB+ for the country’s foreign currency sovereign credit rating, while the local currency rating was also downgraded from BBB+ to BBB-.
It also placed a negative outlook on the country’s rating prospects as it warned the “political challenges Brazil faces have continued to mount, weighing on the government’s ability and willingness to submit a 2016 budget to Congress”.
S&P noted there is a “one-in-three likelihood of a further downgrade due to a further deterioration of Brazil’s fiscal position”.
It argued the country’s credit profile had weakened as the latest 2016 budget proposal at the end of August included further revisions to fiscal targets, which it says reflects internal disagreement in the government on the measures needed to address the public finances. It also highlighted the impact of ongoing corruption investigations, including allegations regarding the state owned enterprise Petrobras.
S&P added: “Stressed coalition dynamics between the Workers’ Party and the Brazilian Democratic Movement Party augur poorly for approval of needed fiscal adjustment measures, even with a relaxed fiscal target, in our view. This is against a backdrop of low approval ratings for President Rousseff and her government, which have declined to less than 10 per cent, and the possibility that the president may be impeached (although this outcome is not our base case).”
