RIO DE JANEIRO: Moody’s put Brazil’s sovereign rating on review for a cut to junk status Wednesday, piling more pressure on embattled President Dilma Rousseff.
The rating agency said in a statement that “worsening governability conditions and
increased risk of policy paralysis” was one of the main drivers for the move, which comes with Rousseff fighting for her political life under the threat of impeachment.
Moody’s also identified as a chief concern “rapidly and materially deteriorating macroeconomic and fiscal trends and diminished likelihood of trend reversal in the next two to three years.”
Brazil, the world’s seventh-biggest economy, is currently rated Baa3, the lowest level of investment grade.
Brazil’s politics is in meltdown over the threat to Rousseff and its economy is doing little better, suffering deep recession, rising unemployment, and a dramatic drop in investor confidence, which has been fueled by the bid to get Rousseff out.
Inflation is more than double the government target of 4.5 percent, with GDP shrinking 4.5 percent year-on-year and unemployment rising inexorably.
“During the review, Moody’s will assess the likelihood of further deterioration in the government’s fiscal position against the agency’s baseline assumptions supporting the current Baa3 rating,” the agency said.
“And the prospect of a faster and more significant rise in the government’s debt trajectory, in the context of heightened political uncertainty, declining investor confidence and deeper- than-expected recession.”