Debt Weighs on Brazil Rating: S&P

Brazil’s BBB- (stable) rating is supported by commitment to prudent macroeconomic policies, but constrained by sovereign obligations, according to S&P. “The government’s relatively high debt level and still-high interest burden remain major weaknesses to the ratings on Brazil,” says S&P credit analyst Sebastian Briozzo. “These two factors will require fiscal responsibility over the medium term.” The agency says president Lula’s strong popularity should facilitate implementation of policy to deal with significant economic challenges this year, but raises concerns about the presidential election in 2010, when the economy is seen recovering only gradually. S&P expects Brazil’s GDP to decline by about 1% in 2009 compared with 5.1% growth in 2008. It adds that the general government deficit will reach 3.0% of GDP in 2009, deteriorating only slightly compared with a deficit of 2.1% in 2008. This assumes a primary surplus for the nonfinancial public sector of 2.0% of GDP in 2009, less than the government-reaffirmed target of 2.3% of GDP, or 2.5% when including public-sector enterprises.