• Government now expects 2016 deficit before interest payments
  • Finance was a main factor in August downgrade, Moody's says

Brazil’s projected budget deficit in 2016 reflects the challenge the nation faces in shoring up fiscal accounts, according to Moody’s Investors Service and Fitch Ratings.

The government said Monday that it expects a shortfall before interest payments of 30.5 billion reais ($8.3 billion), or about 0.5 percent of gross domestic product. That compares with a surplus of 2 percent seen at the beginning of this year and a revised target of 0.7 percent announced in July.

The revision is “well below Fitch’s baseline scenario used in April,” senior director Shelly Shetty said in an e-mailed response to questions. Moody’s senior analyst Mauro Leos wrote that the budget challenge was a “main driver” when the company lowered Brazil’s rating to the cusp of junk last month.

Brazil is ranked by Fitch at the second-lowest level of investment grade.

Finance Minister Joaquim Levy faces the challenge of a deeper-than-expected recession and legislative resistance to spending cuts and tax increases. In the latest setback, the government scrapped efforts to revive a tax on financial transactions following opposition by congressional leaders.

Brazil’s real fell to a 12-year low of 3.6911 per dollar Tuesday and led losses among major currencies as the projected deficit in 2016 added to speculation that the nation will lose its investment-grade rating. The benchmark Ibovespa stock index dropped 2.6 percent after sinking into a bear market in August.

Before it's here, it's on the Bloomberg Terminal. LEARN MORE