Brazilian government calls economy downgrade inaccurate

The lowering of Brazil’s credit rating by Standard and Poor’s (S&P) is inconsistent with Brazil’s economy, announced the Ministry of Finance in a note issued on Monday (Mar. 24).

The Ministry reaffirmed its commitment to the primary surplus target of 1.9% of the gross domestic product (GDP) in 2014, and to fiscal balance in the following years. The government also restated the continuity of its efforts to prioritize investments and promote long-term sustainable growth.

Brazil’s credit rating had been cut by S&P from BBB to BBB- on Monday (Mar. 24), with neither a positive nor a negative bias, which indicates it should not be downgraded in the next months. The firm further reported that the Brazilian government’s debt burden – the indicator most commonly used in international analyses – is heavy, whereas the real GDP growth is low, and will probably stand at 1.8% in 2014 and 2% in 2015. According to S&P, the signs given by the Brazilian government regarding its expenditures in an election year are mixed, and there is insufficient trust in the business environment, which is reflected in poor prospects for investments from the private enterprise. Also, the population’s higher debt levels should constrain the growth of consumption.

According to the Ministry of Finance, S&P's evaluation of the country’s fiscal situation has been misinterpreted as it does not take into account that Brazil has reported one of the world's biggest primary surpluses in the last 15 years and has reduced public indebtedness. “It’s worth noting that, in 2013, we had a primary surplus equivalent to 1,9% of the GDP, which is enough to reduce public indebtedness, both gross (to 57.2% from 58.8% of the GDP) and net (to 33,8% from 35,3% of the GDP),” the Ministry mentioned.

The Ministry emphasized that Brazil has grown 17.8% since the beginning of the global financial crisis that broke out in 2008, and that the country has accumulated one of the highest growth rates in the period among G20 countries. “Last year the country grew 2.3%, one of the best performances in the group.”

On the country’s history of investments, the ministry also noted that the program of concessions started last year is expected to mobilize over $400 billion in the upcoming years, and mentioned that investments rose 6.3% last year, the second most significant increase among G20 countries. The ministry further reported that the country has been among the world’s top targets for foreign direct investments – investments that create new jobs in Brazil – with over $65 billion having come into the country in the 12-month period ending in February 2014.

It was also pointed out by the Finance Ministry that the country is ready for possible speculative attacks, as it holds international reserves totaling as much as $378 billion. “The external  vulnerability of Brazil’s economy is low, since its international reserves rank fifth among G20 countries, ten times larger than its short-term public debt, which, in turn, is the smallest one in the group (if compared to the total external debt),” the note read.

According to the Ministry, even after the rating was lowered, Brazil’s investment grade remains the same, which indicates a relatively low risk of default.

Translated by Augusto Queiroz / Fabrício Ferreira