Link to Fitch Ratings' Report: Brazil's Loss of Investment Grade: Ratings Downgrade Drivers and Future Trajectory

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=876500

The December 2015 downgrade of Brazil's sovereign rating to speculative grade ('BB+'/Negative Outlook) reflected a deeper economic recession, adverse fiscal developments, rising government debt burden, and increased political uncertainty that eroded Brazil's investment grade rating underpinnings, says Fitch Ratings in a new special report. The Negative Outlook highlights continued downside risks surrounding these developments.

Brazil's economic recession could be deeper and more protracted than previously forecast. Medium-term prospects remain weak, with a meaningful pick-up in growth only likely once the political environment stabilizes. At the same time, fiscal performance continued to deteriorate in 2015, while repeated changes in fiscal targets hurt policy creditability. The slower than previously expected fiscal consolidation and weak growth outlook will lead to faster growth in the government debt burden than Fitch had projected in its October downgrade of Brazil to 'BBB-'.

Governability risks and policy and political uncertainty have complicated the political landscape, with the start of impeachment proceedings against President Rousseff adding an additional layer of uncertainty. Fitch believes these proceedings will detract from timely and effective implementation of corrective fiscal adjustments and broader structural reform.

The special report 'Brazil's Loss of Investment Grade: Economic, Fiscal and Political Risks Drove Downgrade' is available at www.fitchratings.com.

Additional information is available at www.fitchratings.com.

Applicable Criteria

Sovereign Rating Criteria (pub. 12 Aug 2014)

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=754428

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