Moody's says no Brazil investment grade rating before 2018

BUENOS AIRES: Brazil will not obtain an investment-grade credit rating from Moody's Investors Services before the current president's term ends in 2018, a Moody's analyst told Reuters on Thursday, adding that planned reforms are crucial for earning a stable outlook.

Mauro Leos, a senior vice president in charge of Latin American credit ratings, also said Mexico's spending cuts would ensure that the 2017 fiscal deficit is smaller than the current year's. Mexico's growth next year will be below 3 percent but higher than the 2 percent in 2016, Leos said in an interview.

Moody's downgraded Brazil's debt to junk with a negative outlook in February as Latin America's largest economy sank deeper into recession amid impeachment proceedings against former President Dilma Rousseff.

That political uncertainty contributed to the negative outlook, Leos said, but even though Rousseff is now out of office Brazil must pass reforms including a government spending cap and pension reforms in order for the outlook to change to stable.

"For us right now, the discussion in the case of Brazil's rating is not a discussion of investment grade," said Leos, adding that the proposed reforms were "radical" by Brazilian standards. "During the course of this administration, it is clearly not a discussion of investment grade."

President Michel Temer's term runs through 2018. Leos said Brazil's public debt, which economists forecast as high as 70 percent of GDP, is unsustainable.

Leos said Mexico's planned 2017 spending cuts of 1.2 percent of GDP were enough to tame the fiscal deficit, as falling oil prices and declining production from state oil company Pemex, along with weak growth, threaten revenues.

While growth will remain subdued, Mexico could start seeing results from its efforts to attract foreign partners to set up joint ventures, known as farm outs, with Pemex by the end of this year, Leos said.

Moody's changed Mexico's outlook to negative from stable in March, and would likely wait 12-24 months from then before deciding on another revision, Leos said.

Mexico's outlook depends on the outcome of the US presidential election, as Republican candidate Donald Trump has vowed to clamp down on trade with Mexico.

"When we talk about the downside in Mexico, none of the bad scenarios include Trump," Leos said. "If the result is a Republican victory, we'll have to sit down at the table and do the math on what could happen."