DBRS downgrades Brazil to BB

DBRS said it downgraded the Federative Republic of Brazil’s long-term foreign currency issuer rating to BB and the long-term local currency issuer rating to BB (high). The trend on both long-term ratings is negative.

DBRS also downgraded the short-term foreign currency issuer rating to R-4 with a stable trend and the short-term local currency issuer rating to R-3 with a negative trend.

The one-notch downgrade reflects the scale of Brazil’s fiscal challenge, DBRS said in a news release. The primary deficit is projected to widen to 2.6% of GDP in 2016, materially larger than expectations during DBRS’ last review in March 2016.

Due to the high share of mandatory and indexed spending, reversing the fiscal trajectory will require fundamental budgetary reforms, the agency added.

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