Brazil's Treasury asked state governments to halt requests for new loans to avoid lifting its overall debt which is being closely watched by credit rating agencies that have threatened to take away the country's coveted investment grade rating, the finance ministry said in a statement on Friday. "The request reflects the current state of the economy and the large amounts of credit requested by and approved for sub national entities," the statement said.
Annual credit disbursement for Brazilian states have ballooned to over 35 billion reais ($10 billion) in the last few years, it added. Rating agency Standard & Poor's has threatened to reduce Brazil's credit standing to junk territory as a deepening political crisis threatens efforts by President Dilma Rousseff to rein in a gaping deficit in government accounts.
During her first term Rousseff relaxed credit conditions for the states to boost investment in a failed attempt to revive a slowing economy that is now sliding into recession and generating less fiscal revenues for the federal government. Brazil's Treasury, which is part of the Finance Ministry, is the guarantor of last resort for state governments and approves their requests for foreign loans. Earlier this week the state of Rio Grande do Sul missed a payment on its debt with the federal government as it struggles to balance its overdrawn accounts.
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