By Tiago Pariz
SAO PAULO Jan 6 Moody's Investors Service could
cut Brazil's rating outlook later this year if the economy
disappoints in the first half of 2014, Mauro Leos, the firm's
senior credit analyst for Brazil, said on Monday.
If the economy performs as expected, however, Moody's will
wait to decide the future of the country's rating until it can
evaluate the policies of an incoming government to be elected
later this year. Brazil's "Baa2" rating stands only two notches
into investment grade.
"As soon as we have official data for GDP and the fiscal
performance of the first six months, we should have a pretty
good idea of how 2014 will look like," Leos told Reuters in an
"If it is as we expect, we will wait for the elections and
the new government's (economic) message. If it is weaker, we'll
analyze possible changes. If it is stronger, we won't do
Moody's base scenario for Brazil in 2014 includes gross
domestic product growth of 2 percent and a primary budget
surplus of 2 percent of GDP.
In September, Moody's reviewed the outlook for Brazil's
credit rating to stable from positive. On Monday, it said in a
report that a key issue for the rating is whether government
officials will be able to ensure a declining path for the
country's debt-to-GDP ratio, which measures a country's ability
to service debt in the long term.
That ratio had been slowly declining during the past several
years as Brazil remained committed to high targets for its
primary budget surplus, or excess revenue over expenditure
before debt payments.
But President Dilma Rousseff has lowered Brazil's primary
budget target in 2013 as she granted tax breaks to boost growth.
The government started the year with a goal of 3.1 percent of
GDP and cut that to 2.3 percent, but will likely be able to
deliver a surplus of only about 2 percent.
As a result, Brazil's debt-to-GDP ratio has been now
climbing toward 60 percent and, according to Moody's, could
reach 62 percent in 2014.
"The path debt-to-GDP takes will strongly influence Brazil's
sovereign credit outlook," Moody's said in its report. "An
important question to sovereign credit quality is whether
authorities can restore conditions that will eventually lead to
a declining trend in the debt ratio."
Rival ratings agencies Standard & Poor's and Fitch Ratings
also have Brazil in the second-lowest investment grade rating.
S&P, however, assigned a negative rating outlook to Brazil last
June, which means a downgrade could happen later this year or in