(Bloomberg) -- Brazil’s credit score was raised to the highest junk grade by Moody’s Rating, which cited robust economic growth and an expanding track record of reforms as reasons for the upgrade.
Moody’s raised Brazil’s sovereign rating to Ba1 from Ba2 on Tuesday, putting it on par with Oman and Morocco. The outlook is positive.
“The upgrade reflects material credit improvements which we expect to continue,” analysts including Samar Maziad wrote in a statement.
The Brazilian real reversed losses on the back of the news, closing 0.2% higher versus the dollar. The largest exchange-traded fund tracking the country’s stocks gained in post-market trading in New York.
The upgrade comes as Brazil tries to regain the investment-grade status it lost almost a decade ago. A fiscal framework presented by Luiz Inacio Lula da Silva’s administration and the long-awaited overhaul of the country’s tax code have been welcomed by investors.
Growth
Activity has also continued to surprise to the upside. Brazil’s central bank raised its 2024 growth forecast and now sees the economy expanding in line with the most optimistic estimates — GDP is expected to expand 3.2% this year, up from June’s estimate of 2.3%, according to its quarterly inflation report published last week.
Still, investors have remained cautious amid concerns about government spending and its impact on the country’s fiscal accounts. The worries have helped make the real one of the worst currencies among majors this year, down some 11% versus the dollar.
While the credibility of Brazil’s fiscal framework “is still moderate,” growth and adhering to its fiscal policy will “allow the debt burden to stabilize in the medium term, albeit at relatively high levels,” Moody’s added.
Fiscal commitment
The government reaffirmed its commitment to a continued improvement in fiscal results, citing efforts to boost tax collection and keep expenditures under control, Brazil’s finance ministry said in a statement following the decision.
Since cutting the country to junk in 2016, Moody’s had flipped flopped on the outlook — moving it to stable from negative in 2017, then back to negative months later, and again to stable the following year. It affirmed the score and stable outlook twice — in 2020 and 2022 — before raising the outlook in May.
Fitch Ratings and S&P Global Ratings upgraded Brazil to BB last year — two notches below investment grade.
--With assistance from Martha Beck.
(Updates with market reaction, finance ministry’s comments and context starting in fourth paragraph.)
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