UPDATE 1-Fitch confirms BB- sovereign rating on Brazil, outlook negative
(Add details on fiscal and economic situation, quotes)
BRASILIA, Nov. 18 (Reuters) – Credit rating agency Fitch confirmed its “ BB- ” rating on Brazil’s sovereign debt on Wednesday and maintained its negative outlook, citing the government’s widening budget deficit, the skyrocketing debt and uncertainty about the outlook for fiscal consolidation.
While noting that Brazil’s large foreign exchange reserves, liquid domestic debt market, and flexible exchange rate can help absorb shocks, Fitch said there was uncertainty around the government’s fiscal rules. next year, the amount of debt it has to roll over and the “fluidity”. Politics.
“The negative outlook reflects the severe deterioration of Brazil’s budget deficit and public debt burden in 2020 and the lingering uncertainty about the outlook for fiscal consolidation, including the sustainability of the expenditure ceiling,” said Fitch.
“In addition, the increase in the maturities of short-term domestic debt in a context of heavy public debt burden makes Brazil vulnerable to shocks, including changes in domestic investor confidence and financing conditions,” a- he added.
Fitch estimates that the Brazilian treasury will have to defer more than 1.1 trillion reais ($ 207 billion) next year, or about 15% of the projected gross domestic product, much of it in the first four months.
Fitch expects Latin America’s largest economy to shrink 5.0% this year and rebound 3.2% next year, thanks to global recovery, growth in its main trading partner , China, and at a competitive exchange rate.
However, several downside risks could hamper the recovery, including the end of emergency income transfers, high unemployment, a second wave of COVID-19, a tightening of social distancing measures and a loss of market confidence in the fiscal consolidation path.
Fitch expects the government debt burden to reach nearly 95% of GDP this year from 75.8% last year, significantly higher than the median of 59.9% of countries rated BB, a he declared.
The Brazilian government’s nominal budget deficit is expected to widen to an all-time high of 16.7% of GDP this year before narrowing to 7% next year, Fitch said. (Reporting by Jamie McGeever in Brasilia and Bhanvi Sajita in Bangalore; Editing by Diane Craft and Paul Simao)