Fitch Ratings maintained Brazil’s sovereign rating at BB- with a negative outlook on December 14, as tightened financing conditions, fiscal uncertainties, and a highly polarized election weigh on the country’s economy.
The negative outlook “reflects downside risks to the economy and public finances and debt trajectory in the context of tightened financing conditions and increased doubts about the credibility of the spending ceiling anchor,” the agency said.
The latter is about to suffer changes as the Jair Bolsonaro administration tries to increase social welfare expenditures by postponing the payment of IOU bonds and decoupling those expenses from federal spending cap rules.
Fitch’s decision comes a couple of weeks after S&P noted that a future downgrade would be possible if Brazil fails to curb its public spending. The political environment also adds to the uncertainty, they note, as “the 2022 election cycle could also crimp investment appetite, as could an economic reform agenda that has stalled after some progress in early 2021.”
The agency warns that the tightening of financial conditions following one of the harshest interest rate spikes in the world will take a toll on growth in 2022. Fitch estimates the Brazilian economy growing by 4.8 percent this year, but expanding by a mere 0.5 percent in 2022.