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

Egypt Seeks Closer Ties to Brazil and Mercosur

Egyptian interests were contemplated in the proposal of the declaration of the summit between ...

UN Scolds Brazil for Its Police and Prison System

The organization of the Brazilian police, the high death toll in police actions, and ...

Brazil's former Agriculture Minister, Roberto Rodrigues

Brazil Betting Ethanol Will Change World’s Trade Relations

Brazil's agroenergy sector, especially ethanol, has recently attracted foreign investment of around US$ 1 ...

Brazil’s Latest Fad: the Narghile

The table pipe, which is very appreciated in the Arab countries, became popular in ...

Obama’s Trip to South America Pleases Brazil and Upsets Argentina

American president Barack Obama has announced that he will pay his first visit to ...

Politicking on Independence Day in Brazil

7 September is Brazilian National Day, the occasion when Dom Pedro declared his independence ...

All of Brazil Grinds to a Halt for World Cup, Even Supreme Court Closes Shop

82% of Brazilians intend to watch the World Cup games at home, according to ...

Brazil's Embraer Super Tucano training airplane

Brazil’s Embraer Shortlisted by Emirates’ Armed Forces

The Armed Forces of the United Arab Emirates are evaluating the purchase of airplanes ...

Brazil’s Big Plans: 750,000 Property Deeds in 2 Years

Brazil’s Ministry of Cities says that between now and the end of 2006 it ...

Brazil Gives Exporters a Break Offering Credit in Foreign Currencies

The Brazilian central bank will offer credit lines in foreign currencies as of next ...