Ratings agency Moody’s affirms Brazil’s sovereign credit rating and revises outlook to stable

The credit rating agency Moody’s has affirmed Brazil’s sovereign credit rating at Ba1, revising the outlook from positive to stable.

In its statement, Moody’s highlights that the maintenance of the credit rating reflects expectations of continued solid and sustainable economic growth, a diversified economy and with limited vulnerability to external shocks, due to the country’s favorable external position. The agency also emphasizes the track record of successive structural reforms implemented by recent administrations as one of the pillars that reinforces the resilience of the Brazilian economy.

Regarding the change in outlook, the agency acknowledges Brazil’s fiscal consolidation efforts, including the achievement of primary balance targets. However, it assesses that progress on reforms aimed at addressing budgetary rigidities and strengthening fiscal policy credibility has been slower than expected in October 2024, when the previous review was conducted. Additionally, higher debt servicing costs are seen as a risk factor to the debt trajectory, amid an environment of inflationary pressures and monetary tightening. The agency emphasizes that it still expects Brazil to stabilize its debt in the medium term, provided that fiscal consolidation efforts continue.

Moody’s points out that measures such as reducing revenue earmarking and de-linking social benefits from the minimum wage, or a social security benefit reform could create fiscal space, potentially paving the way for an upgrade of the country's credit rating. However, the agency warns that if consolidation efforts are reversed or prove less effective than currently expected, there would be downward pressure on the rating outlook.

In this regard, the Ministry of Finance reaffirms its commitment to the continuous improvement of fiscal results and to deepening the process of structural reforms, which are essential to ensure stronger long-term economic growth and the sustainability of public finances. This process has been — and will continue to be — carried out through joint efforts between the Executive Branch and the National Congress, which have demonstrated effectiveness by approving several important measures, including a comprehensive tax reform.