(Adds analyst comments and context)
By Walter Brandimarte and Alonso Soto
SAO PAULO, Oct 16 (Reuters) - Fitch Ratings will be in a better position in the next few months to assess Brazil’s political environment, a key element in its decision on whether to strip the country of its investment grade rating, a senior analyst with the agency said on Friday.
Fitch’s senior director, Shelly Shetty, said in a conference call that an escalation of the political crisis will be negative for Brazil’s rating. The agency on Thursday downgraded the country to BBB-minus, its lowest investment-grade rating, with a negative outlook.
The risk that Congress removes President Dilma Rousseff in impeachment proceedings has increased recently, Shetty said, but the agency believes the leftist leader will stay in office.
Fitch already expects Brazil will post a primary budget deficit for this year, but will watch closely Brazil’s fiscal outlook for 2016 and 2017 to decide on its rating.
The Brazilian government is considering slashing its 2015 primary surplus target to a deficit this year as a deepening recession and political gridlock drags down federal revenues.
The approval of an unpopular financial transaction tax, known as CPMF, is unlikely, but Fitch will keep a close eye on the alternatives the government puts forward to improve its finances, Shetty said.
Reporting by Walter Brandimarte and Alonso Soto Editing by W Simon