SAO PAULO/RIO DE JANEIRO: Moody's Investors Service could wait until 2016 to decide whether to cut Brazil's sovereign rating, a senior analyst at the firm said on Tuesday, adding that rampant budget spending remains the "weakest link" in the country's credit profile.
Moody's, which earlier this month warned it could lower Brazil's "Baa2" rating over the next two years due to a slower economy and a swelling debt burden, expects to convene a committee to discuss Brazil around the first quarter of 2016.
"If there are no negative surprises, we won't convene a committee before that date," Mauro Leos, Moody's sovereign ratings analyst for Brazil, said at an event in Sao Paulo. "We have said before that we are not too optimistic about next year."
Brazil remains an "outlier," which means that its debt metrics have performed on average worse than those of similarly-rated peers, Leos noted. Adding to that, concerns linger over a slow economy and dwindling investor confidence, he said.
The threat of a Moody's downgrade has added pressure on the winner of the October presidential elections to change course on economic policies. Brazil on Tuesday posted a much larger-than-expected primary budget deficit in August, making it nearly impossible for the government to achieve its key fiscal target this year.
President Dilma Rousseff, who is leading opinion polls, has said she has no plans to radically alter policies if re-elected for a second, four-year term. Her main challenger, environmentalist Marina Silva, is more keen on cutting government spending.
However, a difficult economic situation will make it difficult for whoever wins the elections to deliver on campaign promises, Leos said.
Moody's will monitor the next government's ability to deliver on campaign promises and gauge the market reaction to those policy announcements to make a decision, according to Leos.
He said Moody's analysts expect to meet Brazilian officials from the new administration next April during the IADB meeting in South Korea, and that another round of meetings could happen by the end of 2015.
Brazil's Baa2 rating from Moody's is the second-lowest investment-grade ranking, or two notches above junk status.
Standard & Poor's lowered Brazil's credit rating to BBB-minus, the lowest investment-grade ranking, in March. Fitch Ratings is the only one of the big three ratings agencies to keep a stable outlook on Brazil with a BBB rating, equivalent to Moody's Baa2.
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