Reforms helped improve Brazil’s rating, Fitch says
Brazil has surprised with better-than-expected macro and fiscal performance, said Shelly Shetty, Fitch’s head of Americas and Asia sovereigns, in an interview with Valor, justifying the country’s rating upgrade on July 26. But the road back to investment grade will be long.According to the person in charge of Brazil’s rating at the agency, the country’s metrics are currently far below those seen in 2008, when Brazil was upgraded to investment grade. "Growth potential is relatively weak, around 2% per year - or a little less than half of what it was 14 years ago," she said.Ms. Shetty also commented on another recent decision by the agency. Fitch’s downgrade of the United States in early August brought up a discussion that had been underestimated by economic actors: the fiscal and debt outlook of the world’s largest powerhouse. "Even though the U.S. debt ceiling issue has been resolved, we expect fiscal deficits to remain high and grow up," she said.According to Ms. Shetty, Fitch expects the U.S. economy to enter a recession, albeit superficially, starting in the fourth quarter. "The fast-paced and substantial tightening is likely to lead to a recession in the U.S. in the fourth quarter of this year, and first quarter of next year," she said.Read below the main excerpts from the interview.Valor: Does Brazil’s rating upgrade reflect greater optimism about the country’s economy?Shelly Shetty: We upgraded Brazil from BB minus to BB with a stable outlook. This upgrade reflects better-than-expected macro and fiscal performance. In recent years, we have seen that Brazil has been stressed and tested twice, by the pandemic and the global inflation shock that we saw last year because of the war in Ukraine. Brazil has come out from the shocks in a better way than we had anticipated. Also, in this rating decision, we have taken into account Brazil’s progress in recent years on economic reforms. Our last downgrade, when Brazil went from BB to BB minus, was in 2018. Since then, we’ve seen numerous reforms, which, in our opinion, have made Brazil’s economy and fiscal and public finances more resilient. I’m talking about the social security reform, the labor sector reform, the privatization of Eletrobras, the Central Bank autonomy, regulatory upgrades of sanitation, and the gas sectors to attract private investment. In a very short window of time that we’ve seen of the new administration, we are seeing evidence and signals that the administration is going...
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