Brazil is currently grappling with a significant fiscal crisis as its currency continues to plummet to new lows. This downturn is largely attributed to a combination of high interest rates, which remain above 12%, and a lack of fiscal moderation signals from the government [96baf427]. President Luiz Inácio Lula da Silva, who has recently been discharged from the hospital following emergency brain surgery, has identified these high interest rates as a primary concern affecting the economy [96baf427].
The situation has intensified pressure on Lula's administration to implement necessary spending reforms to stabilize the economy and regain investor confidence. Analysts, including Mariano Machado from Verisk Maplecroft, have pointed out the absence of clear fiscal discipline, which is crucial for addressing the ongoing economic challenges [96baf427].
In a broader context, Fitch Ratings has indicated that an upgrade to Brazil's credit rating is unlikely in the near future, primarily due to ongoing concerns regarding public finance improvements [a98a8388]. Currently rated at 'BB', which is two notches below investment grade, Brazil's economic outlook remains cautious despite some positive indicators. Recently, Moody's upgraded Brazil's rating to 'Ba1', reflecting a more optimistic view on the country's fiscal policies and economic recovery [a98a8388].
Brazil's GDP is projected to grow by approximately 3% in 2024, but the federal primary deficit is expected to rise to 1.0% of GDP by 2025, raising concerns about fiscal sustainability [a98a8388]. Additionally, the country's debt-to-GDP ratio is forecasted to increase from 77.8% in 2023 to 83.9% by 2026, complicating efforts to regain investment grade status lost in 2015 [a98a8388].
Lula's administration is actively working to recover this status and has engaged with major rating agencies in New York to discuss Brazil's economic policies and outlook [a98a8388]. However, Fitch's current stance reflects a cautious approach to Brazil's creditworthiness, emphasizing the need for sustained improvements in fiscal management and economic stability [a98a8388].