S&P reassessing Brazil's BB- credit rating and positive outlook

By Jamie McGeever

BRASILIA (Reuters) - S&P Global Ratings is reassessing its current sovereign credit rating and outlook on Brazil, whose economic, fiscal and political challenges have grown significantly due to the coronavirus crisis.

In an interview with Reuters, Livia Honsel, S&P's lead sovereign Brazil analyst, said national debt could reach unprecedented levels. It was unclear when and by how much economic growth and the political appetite for fiscal reforms will recover, she added.

The deteriorating economic, fiscal and political climate in the emergency is understandable and does not necessarily mean Brazil's BB- rating or positive outlook will be lowered, she said. But it will have a bearing.

"We changed the outlook to positive in December ... (but) we are reassessing that position. In general, the rating was oriented towards an upgrade. But we need to wait and see," Honsel said.

"It is difficult to be positive in this environment. We are reassessing our position on all sovereigns, including Brazil," Honsel said.

Brazil's gross debt could now reach as much as 90% of gross domestic product (GDP) next year, with net debt close to 70%, she said, as tax revenue falls while crisis-fighting public spending rises. Both would be record levels.

Before the pandemic, government officials were optimistic Brazil would be upgraded, perhaps by the end of 2020, a major step toward regaining the investment-grade status lost in 2015 during one of the country's worst-ever recessions.

Honsel said in December that an upgrade to BB could happen in 2020 if the deficit was reduced further and economic growth picked up. Pre-coronavisus, the government was forecasting a primary budget deficit of 124 billion reais and economic growth of more than 2%.

But the crisis has bludgeoned Brazil's growth and fiscal prospects, as it has with every country. The government now expects zero growth and a primary deficit of 350 billion reais, or 4.5% of GDP this year.

Honsel said she and her colleagues will try to look through the near-term fog and establish what Brazil's fiscal path is over the medium- to longer-term.

"We need to reassess, not panic," she said.

One key variable is the political climate and appetite for implementing the government's economic and fiscal reform agenda when the worst of the crisis is over, Honsel said.

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While lawmakers are aware of the need to deliver on reforms, the political landscape now is "much more difficult" and the country may be more polarized than ever, she said.