Brazil’s credit rating nears junk status after Moody’s downgrade

Moody’s Investors Service said it “downgraded Brazil’s government bond rating to Baa3 from Baa2”.

At the same time, Moody’s warned it could downgrade Barrick’s credit to junk status if its debt relative to income remained elevated.

Government revenue has plunged since the beginning of the year, however, as Brazil sinks into a deep recession expected to last through 2016.

“It was good that Moody’s didn’t cut by two notches, and has a stable outlook”.

Brazil is rated BBB- by S&P, which on July 28 changed the outlook to negative, indicating that a downgrade is more likely than an upgrade.

The agency added that a stable outlook “comes as a certain relief” for the current government.

“It will be challenging for Brazil to achieve and sustain improving fiscal trends”, Moody’s said.

“They are either dependent on the higher price of gold to delever or they need to execute on maybe paring down some of the non-core assets and using the proceeds to invest in their core operations”, Mr. Kirk said in an interview.

The credit rating agency thinks Barrick will keep capital spending “below production maintenance levels” through the next couple of years so that it generates “roughly breakeven” free cash flow. In 2011, one dollar was about 1.5 Brazilian reais.

After growing just 0.1% in 2014, Brazil’s economy is expected to contract 1.8% this year and post no growth in 2016, according to a weekly central bank survey with economists. Even as growth stalls, above target inflation continues to accelerate, eating into wages and pushing Rousseff’s approval rating to record lows.

The country’s currency is the worst performer among 31 major tenders so far this year amid anticipation by investors that Brazil could have its rating lowered and because of woes regarding fiscal accounts.