Moody's cuts Brazil rating to near junk status

According to Moody's ratings agency, a weakening economy, rising government spending and "lack of political consensus on fiscal reforms" were damaging Brazil's ability to get its financial house in order.

The US-based agency said it had "downgraded Brazil's government bond rating to Baa3 from Baa2," taking all factors into consideration. However, Moody's investors' service department also said in a statement that it had "changed the outlook on the rating to stable from negative."

The agency also predicted that government debt would continue to deteriorate, but said that Brazil retained "a number of credit strengths that are reflected in its Baa3 rating."

Second downgrading within a month's time

On July 18, Standard and Poor's credit rating agency had already lowered Brazil to BBB-.

Tuesday's downgrade by Moody's was yet another piece of bad news for President Dilma Rousseff, who is facing opposition threats of impeachment proceedings. Accused of a major corruption scandal, many Brazilians regard her government to be the root of the country's economic woes.

Last month, Brazil slashed its fiscal savings goal to 0.15 percent of GDP from an original 1.1 percent of GDP. Finance Minister Joaquim Levy said the reduced target reflected a drop in tax revenues.

But with an inflation of 9.56 percent within the last 12 months, the fiscal situation in Brazil might lead to investors pulling off from Brazil swiftly, fearing negative returns on their investments.

ss/bw (AFP, dpa)