Fitch Director: Brazil’s Credit Rating Not Expected to Rise Soon, According to Reuters

By Luciana Magalhaes and Fabricio de Castro

SAO PAULO – Fitch Ratings is not expected to upgrade Brazil’s credit rating in the near future, despite the country’s better-than-anticipated economic growth. This is due to uncertainties surrounding Brazil’s ability to significantly enhance its public finances, according to a director in Fitch’s sovereign ratings division.

Currently, Fitch rates Brazil at BB, which is two notches below investment grade, and maintains a stable outlook for the country.

"To consider raising Brazil’s credit rating, we would need to see stronger confidence in the government’s capacity to achieve primary surpluses," remarked Todd Martinez, a senior director and co-head of Americas sovereigns, on Thursday.

In contrast, Moody’s recently raised Brazil’s credit rating to just one notch below investment grade, demonstrating confidence in Latin America’s largest economy, which has not held a low-risk rating for almost a decade.

Fitch is taking a more cautious approach compared to Moody’s, which upgraded Brazil’s long-term issuer and senior unsecured bond ratings from Ba2 to Ba1, accompanied by a positive outlook.

Martinez noted that economic activity in Brazil has continued to exceed expectations, with forecasts suggesting that the gross domestic product is likely to grow by approximately 3% in 2024.

"However, public finances are still a weak point, affecting confidence, exchange rates, and consequently growth," he explained.

Martinez acknowledged efforts by President Luiz Inacio Lula da Silva’s administration to improve the fiscal situation through changes in tax regulations and a recent agreement to reduce payroll exemptions.

Despite these initiatives, Fitch anticipates that the federal primary deficit will increase to 1.0% of GDP in 2025, up from 0.6% this year, before decreasing to 0.8% in 2026.

According to the agency’s current projections for growth and interest rates, this would raise Brazil’s debt-to-GDP ratio from 77.8% this year to 83.9% by 2026.

Lula’s administration is focused on regaining the investment-grade status that Brazil lost in 2015.

During a recent trip to New York in late September, Lula met with representatives from the three major ratings agencies to discuss Brazil’s credit situation.

S&P also rates Brazil at BB with a stable outlook, similar to Fitch’s assessment.