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By Jamie McGeever
April 6 (Reuters) – S&P Global Ratings lowered its outlook on Brazil’s sovereign debt to ‘stable’ on Monday, citing an expected doubling of the government’s budget deficit this year due its significant spending to soften the economic blow from the coronavirus.
S&P had told Reuters last week it was reassessing its BB- rating and positive outlook, and on Monday it acted on the outlook.
It expects the nominal budget deficit to double to 12% this year, the gross national debt to rise by almost 10 percentage points to 85% of gross domestic product, and net debt to rise by a similar amount to 66% of GDP.
“We expect the fiscal deficit and debt figures to deteriorate throughout 2020, driven by higher spending,” S&P said in a note.
“Revenues would also decline due to economic contraction, tax relief related to COVID-19, and declining oil royalties because of low crude oil prices,” it said.
The change comes barely three months after S&P raised the outlook on Brazil to “positive”. The BB- non-investment grade, or so-called ‘junk’, rating was maintained.
The Brazilian government’s package of measures to combat the coronavirus crisis amounts to around 3.5% of GDP, according to S&P. This is “significant” when compared to the fiscal measures taken by other emerging market countries so far: Russia, 0.3% of GDP, Mexico 0.7%, India 0.1%, and Argentina 1%.
S&P cited “considerable” uncertainties surrounding Brazil’s economic and fiscal road ahead, notably political tensions in Brasilia which could hamper the government’s economic and fiscal reform agenda.
But it also said it expects the coronavirus-related shock to be temporary, and that the government’s commitment to its fiscal and economic reform agenda once the crisis is over will be strong. (Reporting by Jamie McGeever; Editing by Stephen Coates)
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