Brazil to Get a BB- for Global Bond Due 2037

Fitch Ratings has assigned a prospective ‘BB-‘ rating with a Positive Outlook to Brazil’s soon-to-be-issued Global U.S. dollar bond due in 2037.

Brazil’s sovereign ratings and Positive Outlook reflect the favorable trends in the country’s balance of payments and external debt dynamics, as well as substantial progress in moderating inflationary pressures, holding out the prospect of lower real interest rates.

Fitch revised Brazil’s Outlook to Positive from Stable on Oct. 11, 2005 in recognition of the fact that the turmoil in Brazilian politics that began in mid-2005 had not compromised the country’s commitment to sound macro policy settings.

Exports were up 22.6% in 2005, totaling US$ 118.3 billion, after rising 32% the year before, compared with a 17.1% increase in imports in 2005 to US$ 73.5 billion, for a record US$ 44.8 billion trade surplus.

The current account surplus is estimated at over US$ 16 billion in 2005 (or 2% of GDP), Brazil’s best current account performance in over 10 years.

Net external debt (NXD) to current external receipts (CXR), a key external solvency indicator monitored by Fitch, is expected to have fallen below 95% by year-end 2005, down from 128% in 2004 and a high of 308% in 1999.

Still, Brazil’s ratio compares unfavorably with the ‘BB’ median of 45.1%, though Brazil’s NXD-relative GDP compares favorably against peers.

Even so, Fitch warns that Brazil’s public debt burden remains high and of short duration and remains a constraint on the country’s sovereign ratings. This is in spite of the government’s outperformance of its primary budget surplus targets in recent years.

Central to reducing the public debt and firmly anchoring public finances on a sustainable path is a reduction in real interest rates, which remain very high by international standards and impose large fiscal costs.

In Fitch’s opinion, establishing a consistent track record on appropriate monetary policy actions to meet the central bank’s stated inflation target, including in the run-up to the presidential elections, would further enhance the credibility of the macroeconomic policy framework.

This would support a sustained reduction in inflation expectations and real interest rates that would be beneficial both for growth and public finances. Likewise, central bank autonomy reform would underpin monetary policy credibility and therefore lower real rates.

Factors that could trigger an upgrade of Brazil’s sovereign ratings include: continued strong export and balance of payments performance, even under less favorable market conditions; a fall in real interest rates underpinning sustained GDP growth rates of at least 3.5% per year; governability, reflected above all in fiscal restraint, maintained in spite of the corruption investigations and the 2006 elections; and finally, greater certainty about the continuity of macro policies in the incoming administration.

Fitch Ratings – www.fitchratings.com

Tags:

You May Also Like

Either Rio Stops Crime or Crime Will Stop Rio

According to the latest Latin America edition of U.S. weekly magazine Newsweek, Rio de ...

American Dollars Are Paying for Defecting Cubans in Brazil

A short while ago I was telling about the brain drain, that is disgusting. ...

Despite Crisis Brazil to Invest US$ 9 Billion in New Ethanol Plants in 2009

Whatever hardships the next sugarcane crop may undergo "the solidness of the sector fundamentals ...

Brazilian Jihad: Suicide Attack on Copacabana Beach – Part 5

This is the last part of a five part series on the Revolt of ...

Accord Between Manufactures Should Stop Brazilian Invasion of Argentina

Manufacturers from Brazil and Argentina have reached a tentative agreement that will privilege the ...

Markets: Another Red Day for Brazil

Brazilian and Latin America receipts posted modest declines, as strength in U.S. markets was ...

Bar Association Calls Brazil’s Presence in Haiti Cruelty Against People and Troops

Organizations and social movements that participated in the World Social Forum in Venezuela last ...

76% of New Industrial Jobs in Brazil Are in the Interior

Industrial employment is moving to the interior of Brazil. In the last five years, ...

Brazil Urges Creation of Mercosur Parliament But Overlooks FTAA

Uruguay and Brazil have urged Mercosur partners Argentina and Paraguay to speed up an ...

Culture Spots: a Brazil Plan to Spread the Brazilian Way

The creation of Culture Spots (Pontos de Cultura) abroad is intended to help Brazilians ...