By Jamie McGeever
April 6 (Reuters) – S&P Global Ratings downgraded Brazil’s sovereign debt outlook to ‘stable’ on Monday, citing a double estimate of the government’s budget deficit this year due to significant spending to soften the economic blow from coronavirus.
S&P had told Reuters last week that it was reassessing its BB-rating and positive outlook, and was acting on that prospect on Monday.
They expect the nominal budget deficit to double to 12% this year, gross national debt to rise by almost 10 percentage points to 85% of gross domestic product, and net debt to rise by an amount equal to 66% of GDP.
“We expect fiscal deficits and debt figures to worsen throughout 2020, driven by higher spending,” S&P said in a note.
“Revenues will also decline due to economic contraction, tax breaks related to COVID-19, and decreased oil royalties due to low crude oil prices,” he said.
The change came nearly three months after the S&P raised the prospect of Brazil to be “positive”. BB-non-investment rating, or commonly referred to as ‘junk’, is maintained.
The Brazilian government’s package of actions to combat the coronavirus crisis amounts to around 3.5% of GDP, according to the S&P. This is “significant” when compared to fiscal measures taken by developing market countries so far: Russia, 0.3% of GDP, Mexico 0.7%, India 0.1%, and Argentina 1%.
S&P cites the “big” uncertainty surrounding Brazil’s economic and fiscal path ahead, especially political tensions in Brasilia that could hamper the government’s economic and fiscal reform agenda.
But it also said it expected shocks related to the corona virus to be temporary, and that the government’s commitment to the fiscal and economic reform agenda after the crisis ended would be strong.
(Reporting by Jamie McGeever; Editing by Stephen Coates)
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