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Haddad says Moody’s recognizes the country’s economic improvement and nods to powers after disagreements

The Minister of Finance took advantage of the decision of the risk rating agency, which improved the outlook for Brazil’s rating, to cite the joint work of the executive, legislative and judicial powers

BRASILIA- After Brazil’s credit rating outlook improvedFinance Minister Fernando Haddad said Moody’s followed the lead of other rating agencies in recognizing “the change for the better in our economic outlook.”

In a post on social media, the head of the economic team also made a nod to the three powers, attributing the decision to the joint work of the executive, legislature and judiciary, “which placed the interests of the country above surmountable differences”.

Moody’s decision comes in a context of strong erosion of relations between the powers of Brasilia. The latest clash concerns the payroll tax exemption for the 17 highest-employing sectors and municipalities, approved by the National Congress, but suspended by the Federal Supreme Court (STF) at the government’s request. The STF trial has not yet concluded, but the president of the Senate, Rodrigo Pacheco (PSD-MG), has already appealed the decision.

The Minister of Institutional Relations, Alexandre Padilha, also followed the same script and took advantage of Moody’s decision to give a nod to the Legislature. In a video posted to social media, Padilha congratulated Haddad and thanked Congress, with an eye toward future votes.

“I want to extend particular thanks to the National Congress, to the President of the Chamber, to the President of the Senate, to the leaders who in these two weeks have discussed this, the importance of consolidating the health of public finances to take this positive step. evaluation “Padilha said.

The minister has faced a process of attrition in Congress since last year, especially among deputies. The crisis worsened after the Speaker of the House, Arthur Lira (PP-AL), publicly called Padilha “incompetent” and “personally disaffected”. Behind the scenes, the man from Alagoas even told his interlocutors that the Chamber’s agenda can only move forward if the minister leaves office.

Global scenario

On social media, Haddad also stressed that, “despite the temporary deterioration of the global economy, Brazil is moving forward and regaining economic, social and environmental credibility.” Currently, all eyes are on US monetary policy, which is signaling that interest rates will be held for a longer period than initially expected.

With higher rates there, emerging markets, like Brazil, become less attractive and lose investment. Therefore, the dollar appreciates relative to the real, which affects the outlook for inflation, interest rates and economic growth.

This Wednesday, the Federal Open Market Committee (FOMC) of Federal Reserve (Fed, the Central Bank of the United States) kept key interest rates unchanged for the sixth time in a row. With the decision – which was unanimous – the Fed Funds rate remains at 5.25%-5.50% per annum.

In a note released by the Ministry of the Treasury, the Treasury underlined that Moody’s decision strengthens the trajectory of improvement of the national credit rating – which has been verified since 2023, with an increase in both Standard & Poors and Fitch, the other two major international standard agencies that measure the fiscal risks of countries and companies.

The economic team also took advantage of the statement to highlight the new fiscal framework. “The agency recognizes the role of the fiscal consolidation framework, which leads to the gradual reduction of deficits, and underlines the importance of maintaining its credibility to reduce uncertainties about the fiscal trajectory,” the statement said.

Moody’s announcement comes at a time of great mistrust about the future of the framework, which underwent small changes, with the approval of Congress, even before completing one year of validity. It also coincides with the easing of fiscal targets set for 2025 and 2026 – which was poorly received by the financial market.

In the note, the Ministry reiterated its commitment to “a sustainable path for public finances, combining efforts to improve collections and contain the dynamics of expenses”.

The team led by Haddad was also asked for an adjustment on the expenditure front, amid signs of exhaustion of fundraising measures, but concrete measures are still few – and most announced by Planning and Budget, minister Simone Tebet.

Furthermore, there are conflicting pressures from the political wing of the government to increase spending due to the approaching municipal elections and the fear of a lower-than-expected performance of the PT, the president’s party, in local elections.

In this pre-election scenario, Congress was also more likely to vote on bills that lead to increased spending or a loss of revenue – so-called “ agenda bombs .” The economic team and the Executive have made calls for parliamentarians to also commit to fiscal adjustment.

Brazil closer to investment grade

In the note, the Treasury emphasizes that once Moody’s changes its credit rating, Brazil will be one step closer to returning to investment grade status. “A significant milestone for the country’s economic stability indicators”, reads the note.

Investment grade works as a kind of good-yield seal, which helps reduce the cost of countries issuing bonds. In other words, how much governments must compensate investors to accept the risk of lending money through the purchase of sovereign bonds.

The department also highlighted the emphasis expressed by Moody’s regarding the improvement of the country’s growth prospects, following the approval of the structural reforms implemented during successive administrations.

“Among the reforms mentioned, the importance of the ongoing tax reform is highlighted. Furthermore, the government’s agenda for energy transition is also highlighted which, with the aim of attracting private investments in clean energy projects, can also help revive growth,” says the Treasury.

Source: Terra

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