😒 Souring Moody’s

Moody’s glum on Brazil’s outlook. Are Brazilians more optimistic about China than they are about the US? Eduardo Bolsonaro wants to follow in his father’s footsteps and become president

Gustavo Ribeiro
June 02, 2025

MARKETS

As fiscal challenges mount, Lula gets a warning

Et tu, Lula? Finance Minister Fernando Haddad’s recent tax hike was criticized by President Lula over the weekend during a meeting with lawmakers. Photo: Washington Costa/MF

Moody’s Ratings delivered a cautionary signal to Brazil’s government last Friday, lowering the country’s credit outlook from “positive” to “stable.” While the agency reaffirmed Brazil’s Ba1 rating — still one notch below investment grade — the decision underscores mounting skepticism about the country’s ability to tame its rising debt and regain fiscal credibility.

👉 Why it matters. The downgrade is a setback for President Luiz Inácio Lula da Silva and Finance Minister Fernando Haddad, who have spent much of the past year trying to assure markets that their fiscal framework can hold. In October 2024, Brazil had been awarded a better rating by Moody’s, viewed at the time as an endorsement of the administration’s efforts to restore fiscal discipline. But since then, the economic winds have changed.

In its decision, Moody’s cited the “pronounced deterioration in debt affordability and slower-than-expected progress in addressing spending rigidity,” despite Brazil meeting its primary balance targets.

Interest payments are surging, largely due to Brazil’s heavy reliance on inflation-linked and variable-rate debt, which is highly sensitive to the Central Bank’s steep interest-rate hikes. The result: a projected debt-to-GDP ratio of 88% over the next five years, up from 82% just seven months ago.

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