The credit rating agency S&P has raised Brazil’s long-term credit rating to “BB” from “BB-“, stating that the approval of the tax reform extends the country’s track record of implementing “pragmatic policies” in recent years.
“Although the reform will be implemented gradually, it brings a significant revision to the tax system and is likely to translate into long-term productivity gains,” S&P said in a statement, noting that the reforms implemented since 2016 also contribute to anchoring macroeconomic stability in the country.
The Brazilian rating remains in speculative territory, two notches below investment grade.
S&P informed that the outlook for the rating is stable, considering that the expectation is for Brazil to have slow progress in addressing fiscal imbalances and weak economic prospects, offset by a strong external position and a monetary policy that has helped anchor inflation expectations.
Following the announcement of the decision, the National Treasury informed that it reiterates its commitment to the ongoing reform agenda, which will contribute to improving the government’s fiscal balance, but will also lead to lower interest rates and improved credit conditions, ensuring price stability.
“Conditions will be created for the expansion of public and private investments and the generation of jobs, income growth, and greater economic efficiency, essential elements for the country’s economic and social development,” the ministry said in a statement.
S&P’s rating upgrade comes six months after the agency raised Brazil’s outlook from stable to positive, justifying the move as a reflection of greater certainty about the stability of the country’s fiscal and monetary policies.
At the time, S&P indicated that the approval of additional reforms would be “essential” for a rating upgrade, specifically highlighting tax reform.
The Fitch agency had already raised Brazil’s rating to “BB” in July, also below investment grade. The agency reaffirmed the rating last week, highlighting the “pragmatism” of the Lula government and maintaining a stable outlook.
Moody’s, which completes the trio of the largest global credit rating agencies, currently has a “Ba2” rating for Brazil.
The tax reform was approved by the Chamber of Deputies last Friday in two rounds, after already going through the scrutiny of the Senate, where it had undergone changes, and is expected to be enacted later this year.