February 6, 2020 / 3:55 PM / 12 days ago

UPDATE 1-Fitch says no guarantee of quick return to investment grade for Brazil

(Adds detail, quotes)

By Jose Gomes Neto

SAO PAULO, Feb 6 (Reuters) - Brazil’s economy should continue to recover this year, but the potential for sub-2% growth persists and concern over the country’s finances means a quick upgrade to an investment grade credit rating cannot be guaranteed, a senior director at Fitch Ratings said on Thursday.

Speaking at an event in Sao Paulo, Shelly Shetty, senior director and co-head of Americas sovereign ratings, said Fitch was looking for more signs debt would stabilize in the medium term, adding that Brazil would likely continue posting primary budget deficits until at least 2022.

On average, countries with a profile similar to Brazil take 10 to 11 years to recover their investment grade credit rating, Shetty said. Fitch cut Brazil to junk status in December 2015, and raised its outlook to stable from negative in February 2018.

Shetty said that Brazil’s finances are still exposed to risks surrounding politics, the government’s economic reform agenda, and high levels of public spending despite last year’s landmark pension reform.

“There are political risks - risks over the ability to pass reforms, and we will assess what that means in terms of the fiscal consolidation process,” Shetty said, noting Brazil’s local elections in October.

On the positive side, Shetty welcomed the central bank’s latest interest rate cut, praised the country’s “strong” foreign exchange reserves position, and said the fall in Brazil’s national debt as a share of GDP is “good news.”

Shetty said she expects the central bank’s benchmark Selic interest rate to remain low at least throughout this year, with low rates likely to be have a positive impact on credit conditions and in Brazil’s capital markets.

Fitch’s last official update on Brazil was in November, when it confirmed its “BB-“ rating and stable outlook, noting high government debt levels, fiscal rigidity and weak potential economic growth. (Reporting by Jose Gomes Neto; Writing by Jamie McGeever; Editing by Alex Richardson and Steve Orlofsky)

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