The rating agency Moody’s said on Thursday, 22, that the government’s decision to exclude additional expenses related to covid-19 from the spending cap mechanism was “negative” for Brazil’s credit profile.
“However, due to the moderate amount of additional spending, and the recent approval of a constitutional amendment to ensure that mandatory expenditures stay within the spending ceiling in the coming years, we expect the authorities to maintain their commitment to fiscal consolidation, in line with the our base scenario, “Samar Maziad, vice president of the agency, said in a note.
Currently, Moody’s assigns a “Ba2” rating for Brazil’s sovereign credit, below the so-called investment grade, with a stable outlook.
Also according to Maziad, in a scenario of creating “recurring exceptions” in order to accommodate spending above the spending ceiling, “the credibility of the instrument as a fiscal anchor will be questioned, with negative implications for the cost and dynamics of the debt of the instrument. Brazil”.
On Wednesday night, President Jair Bolsonaro signed the bill amending the Budget Guidelines Law (LDO).
Approved by the National Congress on Monday, the project paves the way for the sanction of the 2021 Budget, which had been facing an impasse and has a maximum deadline this Thursday.
Adjustments to the 2021 LDO include loosening rules for expenditure to address the Covid-19 pandemic and allow the government to cut by decree (and not by law, as is normally the case) discretionary expenses to ensure compliance with all mandatory expenses .
On Tuesday, Economy Minister Paulo Guedes said that the government’s understanding with Congress on this year’s Budget meets the government’s double commitment to health and fiscal responsibility and that only limited expenses will be left out. the spending cap rule.