S&P Cuts Brazil’s Sovereign Debt Rating to Junk

Standard & Poor’s has cut Brazil’s sovereign debt rating to “junk” status.

As a result, Brazil has lost its investment-grade rating.

S&P said mounting political turmoil and the difficulties faced by President Dilma Rousseff’s government in tackling growing debt were behind the decision.

Brazil was awarded an investment-grade rating by S&P in April 2008, when the country’s economy was on the rise.

However, sliding commodity prices and austerity have created a recession.

Dilma Rousseff’s left-wing government had imposed austerity measures in a bid to avoid such a downgrade.

S&P downgraded Brazil – Latin America’s largest economy – sooner than had been expected.

The move – a major setback for Finance Minister Joaquim Levy’s attempts to shore up public finances – is likely to rock the Brazilian stock market on Thursday.

S&P cut Brazil’s rating from BBB-minus to BB-plus, which denotes substantial credit risk.

The outlook on the new rating remains negative, which means further downgrades could soon follow.

Brazil’s government said last month that that the economy was officially in recession.

S&P said: “The political challenges Brazil faces have continued to mount, weighing on the government’s ability and willingness to submit a 2016 budget to Congress.

“The negative outlook reflects what we believe is a greater than one-in-three likelihood of a further downgrade due to a further deterioration of Brazil’s fiscal position.”

Planning Minister Nelson Barbosa said Brazil would recover its investment-grade status when the economy returned to growth.

He said the government was working on new proposals to balance its accounts and revising programs to tackle the budget deficit.

“Brazil will continue to honor all its obligations,” Nelson Barbosa said.