BRASILIA, April 22 (Reuters) - The Brazilian government's
decision to exclude extra pandemic-fighting expenditure this
year from the spending cap framework is a negative development
for the country's sovereign credit profile, ratings agency
Moody's said on Thursday.
The agreement with Congress that COVID-19 spending will not
be subject to the cap, seen as the government's most important
fiscal rule and crucial to retaining investor confidence in
Brazil, paves the way for the 2021 federal budget to be signed
into law later Thursday by President Jair Bolsonaro.
"The decision to exclude additional covid-related
expenditure from the spending ceiling this year is negative for
Brazil's credit profile," said Samar Maziad, Moody's vice
president and lead sovereign analyst for Brazil.
Maziad said she expects policymakers and lawmakers to
maintain their commitment to fiscal consolidation over the
longer term, but risks are building.
"If recurrent exceptions are made for higher spending above
the ceiling, questions will be raised about the credibility of
the spending ceiling as a fiscal anchor, with negative
implications for Brazil's borrowing costs and debt dynamics,"
Moody's has a sub-investment grade Ba2 rating on Brazil's
sovereign credit, with a stable outlook. Brazil's government
debt is almost 90% of gross domestic product, well above the
average for its emerging market peers.
The ceiling limits growth in public spending to the previous
year's annual rate of inflation, in theory preventing the public
finances from deteriorating too much too quickly.
But crisis-fighting spending last year blew a record hole in
government finances, and a deadly second wave of the virus this
year has triggered another round of budget-busting largesse.
Bolsonaro is expected to sign the 1.5 trillion reais ($275
billion) federal 2021 budget into law later on Thursday.
($1 = 5.46 reais)
(Reporting by Jamie McGeever
Editing by Kirsten Donovan)