(Adds comments by Meirelles, rating context, background)
By Bruno Federowski and Marcela Ayres
BRASILIA, Dec 19 (Reuters) - Brazilian Finance Minister Henrique Meirelles on Tuesday acknowledged the risk of a sovereign downgrade before Congress votes early next year on a plan to cut social security spending.
Lawmakers last week put off a vote on the unpopular pension reform bill to February, edging it closer to the 2018 presidential and parliamentary elections.
Speaking to journalists in Brasília, Meirelles said a potential downgrade to the nation’s credit rating will hinge on how ratings agencies see the change in timing affecting the odds of passing pension reform.
“If the delay is seen as an indication that it will not pass, it will certainly be very negative,” Meirelles said. “If the delay increases the likelihood of approval, it may even be seen as neutral.”
Brazil is rated Ba2 by Moody’s Investors Service and BB by both Standard & Poor’s and Fitch Ratings.
Brazilian markets tumbled after the lower house of Congress put off the vote, as traders bet lawmakers would not stomach the measure in an election year. However, Meirelles said the delay grants the government more time to negotiate.
Meirelles will meet on Thursday with ratings agencies to clarify the government’s stance on pension reform, seeking to avoid a downgrade.
With other fiscal measures also hanging in the balance, he added that the government does not rule out raising taxes or pursuing more spending cuts next year to offset lost revenue from bills not approved by Congress or delayed by legal hurdles.
A Supreme Court Justice on Monday suspended a government ruling putting off wage increases to federal employees that had been expected to yield 4.4 billion reais ($1.3 billion) in savings.
Also sowing doubt about Brazil’s fiscal outlook are reports that Meirelles could leave the government early next year to run for president.
Asked about the matter, Meirelles repeated that he has not yet made a decision, but said the government’s commitment to its economic platform will remain strong regardless of who runs for president next year.
$1 = 3.29 reais Reporting by Bruno Federowski and Marcela Ayres; Editing by Brad Haynes and Andrea Ricci