Brazil Receives Junk Rating From Moody's

Brazil 022416

Brazil's credit rating was downgraded to junk by Moody's Investor Service on Thursday, citing the ongoing deterioration in the country's debt metrics, low growth and challenging political situation.

The country's issuer and bond ratings were cut by two notches to Ba2 from Baa3, and the outlook was changed to negative, suggesting the likelihood of more downgrades in future.

Moody's thus became the last among the three leading rating agencies to downgrade Brazil to junk.

Standard & Poor's lowered the country's rating to junk in September last year and downgraded it further just last week. Fitch Ratings junked Brazil in December.

The downgrade was driven by the prospect of further deterioration in Brazil's debt metrics in a low growth environment, with the government's debt likely to exceed 80 percent of GDP within three years, Moody's said.

The agency also cited the challenging political dynamics, which it fears will continue to complicate the authorities' fiscal consolidation efforts and delay structural reforms.

Moody's expects Brazil's GDP growth to average a negative 0.5 percent over the period 2016-18 and interest rates to remain elevated in real terms.

"The negative outlook reflects the view that risks are skewed toward an even slower consolidation and recovery, or further shocks emerging, which creates uncertainty over the magnitude of deterioration of Brazil's debt profile over the rating horizon," the rating agency added.

President Dilma Rousseff's government is struggling to move ahead with fiscal reforms as her popularity plummeted amid a political scandal that raised calls to impeach her.

The Brazilian economy is in a bad shape and has sunk into a severe recession.

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