In their statement, the agency mentioned that the upgrade primarily reflects the decrease in risks for fiscal prospects. This is a positive sign for Brazil’s economic outlook, indicating a potentially improved fiscal situation.
The credit rating agency DBRS Morningstar has upgraded Brazil’s credit rating from “BB-” to “BB,” with a stable outlook. On Wednesday (26th), Fitch Ratings also made the same move.
In its statement, the agency indicates that the upgrade “mainly reflects the decrease in risks to fiscal prospects.”
DBRS highlights that government actions to increase revenue have reduced the projected public deficit for 2023 to 1% of the Gross Domestic Product (GDP) — a significant improvement compared to the budget’s initial forecast of 2.3% of the GDP.
Furthermore, it points out that the new fiscal framework projects a primary surplus of 1% of GDP for 2026. The agency expects the measure to be approved by Congress soon. “In our opinion, even if the primary targets are not met, the new framework signals that fiscal outcomes will continue to improve during the Lula government,” says the statement.
Fitch also considered similar factors when announcing its credit rating upgrade. According to the agency, there is “better-than-expected macroeconomic and fiscal performance.”
DBRS views the economic reform agenda positively. While acknowledging that Brazil’s medium-term growth prospects are still a significant challenge, the agency sees the economic reforms implemented in the last two administrations as favorable. They believe that credit market reforms, labor regulations, and infrastructure concessions could boost investment and productivity beyond current expectations.
The agency specifically mentions the approved tax reform, which is set to be voted on in the Senate in the second semester. According to DBRS, this reform “could improve growth prospects over time.”
However, the agency also expresses concern about the country’s public debt. Although the new fiscal framework establishes a path to reduce the deficit until 2026, DBRS warns that even if the targets are met, the resulting consolidation may not be sufficient to stabilize the debt dynamics.
Following DBRS’s credit rating upgrade for Brazil, the Ministry of Finance issued a statement attributing the advancement to the country’s improved fiscal conditions and ongoing reform agenda. They state that these movements demonstrate the perception of improvement in fiscal and economic conditions and recognition that the measures and reforms being implemented are on the right track.
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