S&P cuts Brazil’s credit rating further into junk
sao paulo — Brazil’s credit was cut further into junk by S&P Global Ratings after a vote on the government’s flagship pension overhaul was delayed, undermining attempts to shore up the finances of Latin America’s largest economy.
The country’s debt was cut one level to BB-, three notches below investment grade, with a stable outlook, the firm said in a statement. Brazil is now rated at the same level as countries such as Bangladesh and the Dominican Republic. S&P had removed Brazil’s rating from CreditWatch in May, but kept the negative outlook reflecting the political challenges.
“Despite various policy advances by the Temer Administration, Brazil has made slower-than-expected progress in putting in place meaningful legislation to correct structural fiscal slippage and rising debt levels on a timely basis,” S&P analyst Lisa Schineller said in a statement.
Brazil’s government gave up on efforts to vote on a social security reform in 2017 after struggling to get enough support in Congress, kicking the bill back to February 2018 and raising the prospect that nothing will be done about the country’s ballooning pension obligations until after this year’s elections.
Following a corruption scandal that undermined President Michel Temer’s political capital the government redoubled efforts to overhaul the costly pension system before lawmakers focus on campaigning for elections in October 2018. The revised reform was projected to save nearly 400 billion reais ($124.4 billion) over 10 years by introducing a minimum age for retirement of 65 years for men and 62 years for women, among other measures.
The country lost S&P’s investment grade stamp in September 2015 and was further cut into junk in early 2016, a move that was followed by Moody’s Investors Service and Fitch Ratings.
“The absence of cohesive political support for corrective economic measures that we have seen thus far diminishes the prospects for such a solid and prompt response following the 2018 elections,” Schineller said.
The iShares MSCI Brazil exchange-traded fund dropped 0.7 per cent to $42.80 after the close of regular trading in New York, following a gain of 1.9 per cent on Thursday. — Bloomberg