RIO DE JANEIRO Feb 4 Fitch Ratings stepped up
pressure on the Brazilian government on Tuesday to cut spending,
despite upcoming presidential elections, to maintain the
country's sovereign credit rating.
Fellow ratings firms Moody's and Standard & Poor's have
already warned they may lower their outlook on Brazil's rating,
or even downgrade it in the next few months, if the government
does not take action. The three agencies all rate Brazil at the
second-lowest investment grade level.
Fitch said that the country's fiscal performance
deteriorated further in 2013 as government spending accelerated,
while revenues were hurt by sluggish economic activity and tax
Brazil's public sector primary surplus, or the excess
revenue recorded before debt service, declined to 1.9 percent of
gross domestic product in 2013, falling short of an official
adjusted target of 2.3 percent of GDP. Until recently, Brazil
had surpluses above 3 percent of GDP.
If it wasn't for a surge in extraordinary revenues coming
from corporate tax settlements and an oil field auction bonus
late last year, the country's primary surplus would have been
"We believe high reliance on nonrecurrent revenues
highlights the need for the government to control spending,"
Fitch analyst Shelly Shetty wrote in a statement.
"This is especially important in the context of moderate
economic growth, which will likely constrain a robust recovery
in fiscal revenues," she said, adding that a tighter fiscal
policy would "enhance the credibility" of Brazilian policies and
support the country's "BBB" sovereign rating.
While the finance ministry's press office said it would not
comment on Fitch's report, President Dilma Rousseff has vowed to
keep spending in check even during an election year in which
allies demand more government investment in their voting
Rousseff, who is running for a second four-year term in
office in October, has said the administration will announce a
budget freeze that should keep the country's debt-to-GDP ratio
on a declining trend.
In a bid to appease market jitters, Rousseff told global
business leaders in Davos last month that the country was
committed to the fiscal responsibility rules that helped the
Brazilian economy stabilize after decades of crises.
The country's finances are now under even more scrutiny as
investors flee emerging markets on fears that some once-booming
developing economies may further slow down.
Fitch currently has a stable outlook on Brazil's rating but
suggested it could review its position as it gauges whether the
country's fiscal policy "is compatible with a stabilization and
eventual decline in the government's debt burden".
Rival agency Standard & Poor's last June revised Brazil's
rating outlook to negative, saying there was a one-in-three
chance that the country would suffer a rating downgrade over the
next two years.
Moody's Investors Service, which in September withdrew the
positive view it had on Brazil's rating, said it could slap a
negative outlook on that rating later this year if economic
growth disappoints while government spending remains high.