S&P Affirms Brazil Rating as Fiscal Measures to Boost Confidence

Brazil had its investment grade status affirmed by Standard & Poor’s, which last year gave the country its first sovereign downgrade in more than a decade.

S&P affirmed the nation at BBB-, the lowest investment grade, the ratings company said in a statement Monday. The outlook is stable.

While Brazil’s economic growth outlook and fiscal debt numbers have weakened over the last year, S&P expects President Dilma Rousseff to continue implementing fiscal measures to shrink a record budget deficit and restore investor confidence. S&P says the correction in policy direction will pave the way for stronger growth, and forecasts a 2 percent expansion for Latin’s America largest economy following a 1 percent contraction in 2015.

“Rousseff faces an extremely challenging political and economic backdrop,” analysts led by Lisa Schineller wrote. “However, at the same time, economic policy signaling has changed markedly, which was not part of our base-case expectations. A broad-based correction in policy is under way.”

After being elected for a second term by the smallest margin in at least 45 years, Rousseff appointed a new economic team led by Joaquim Levy. The government is facing opposition as it tries to implement austerity measures to stop gross debt, which last year surged to 63 percent of gross domestic product from 57 percent in 2013, from expanding.

S&P cut Brazil one step on March 2014, saying sluggish economic expansion and Rousseff’s expansionary fiscal policies were fueling an increase in debt levels. Moody’s Investors Service, which rates Brazil one level higher at Baa2, put the country on negative outlook in September.

S&P said it expects the government to present a medium-term growth agenda later this year, which would help boost business sentiment, the analysts wrote.

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