Finance Minister: Brazil ready to reattain investment grade by 2026

Finance Minister Fernando Haddad said on Monday (October 14) that Brazil is on a steady path to regaining its investment grade by 2026. He credited the country's new Fiscal Framework (Arcabouço Fiscal), which sets clear and responsible guidelines for revenue and spending, with ensuring long-term fiscal balance. “If we uphold the framework’s structure, we will achieve investment grade,” Haddad stated at the Itaú Macro Vision conference in São Paulo.

The rating is a classification granted by risk rating agencies to countries that present good financial health and are considered safe havens for investment. It increases the capacity to attract resources to projects in various economic areas. Brazil was granted this seal of approval between 2008 and 2015. Earlier this month, Moody’s rating agency raised Brazil’s sovereign credit rating from Ba2 to Ba1, maintaining the Positive rating outlook. The country is now one step away from Moody’s investment grade status.

Haddad noted that Brazil’s recent progress toward regaining its investment grade status is the result of significant economic adjustments, driven by a steadfast commitment to fiscal discipline despite challenges. “We must be particularly cautious, considering both the country’s economic and political health,” he said, stressing the need to uphold individual freedoms. “In a true democracy, voices must have space and balance each other out,” he added, emphasizing that sustainable growth should remain central to Brazil’s long-term development as a national priority.

SCENARIO The Finance Minister underscored that Brazil is overcoming challenges and faces a positive scenario, including a good dialogue with Congress and “a change in the behavior of the Judiciary regarding the economic consequences of its decisions.” Regarding the health of public finances, Haddad mentioned the relevance of the Federal Supreme Court (Supremo Tribunal Federal / STF) decision, earlier this year, regarding the scope of the Fiscal Responsibility Law (Lei de Responsabilidade Fiscal - Complementary Law No. 101/2000). “If they want to waive revenues or create new expenses, the Legislature will have to abide by the principles of the Fiscal Responsibility Law. This is a small revolution in the pattern of relationships between the government branches,” he stated.

Regarding this new, more balanced scenario, Haddad highlighted the approval of the Tax Reform on consumption, currently undergoing a regulatory phase in the National Congress. The second phase of the reform, which will address income tax, is expected to progress next year.

PERSPECTIVES —Asked about the level of public debt, Haddad was emphatic: “We may begin 2025 with a very good outlook,” he said. The minister observed that balancing the debt/GDP ratio depends on both the Ministry of Finance (Ministério da Fazenda) and the Central Bank [Banco Central]. “I always advocate that these policies [fiscal and monetary] make up the whole of economic policy, like two arms belonging to the same body. Both have to work together, looking out for the other, trying to establish positive feedback from one policy to the other,” he said. “I have every reason to believe, also based on the recent work by Banco Central, that we will have good surprises from this perspective starting next year,” he declared.

Haddad underscored that this common effort to strengthen the economy will is helping national recovery without compromising social fairness, “without harming those one wants to protect.” In the quest for a new balance for Brazil, Haddad refutes any change to the Fiscal Framework.

In addition to reinforcing the commitment to fiscal adjustment, Haddad stated that the country possesses a stock of “hibernating” investments that were waiting for safer conditions to be used — and which represent a large portfolio that drives development. “We lost practically a decade. The period between 2013 and 2022 was very hard for Brazil. We have a set of investment projects that have been held back for a long time, which offer high return rates and opportunities,” he stated.

GLOBAL ESCENARIO — In the face of international turbulence, Brazil has acquired a prominent position, Haddad pointed out, with ample capacity to attract investment. “Given the problems the world is facing in certain regions, Brazil is now receiving special attention, also due to competitive advantages related to our production matrix, in general and our energy matrix, in particular,” said the minister. “These circumstances favor a closer look at the Brazilian economy. There is no reason we should not aim for a growth rate that is at least equivalent to the world average; we have been well below the world average for many years,” he added.

The principles established by the Ecological Transformation Plan (Plano de Transformação Ecológica / PTE], launched by the Ministry of Finance last year, will further accelerate the country’s new level of growth, said Haddad. “With the support of Congress and society, I see the Ecological Transformation Plan as a kind of icing on the cake, because it can give an even greater boost to our potential GDP,” he declared. The PTE aims, on the one hand, to promote the transition to a low-carbon economy and, on the other, to promote economic and social development, in addition to overcoming bottlenecks in Brazilian development.

Haddad also highlighted the legacy that Brazil left for the global stage by taking on the G20 rotating presidency. "We will leave important marks. Brazil led a discussion process about global inequality, climate change, the challenge of hunger, poverty and the alignment of multilateral banks for the benefit of development, especially in indebted, low-income countries," said the Finance Minister.

EVENT —At the opening of the Itaú Macro Vision conference, Itaú BBA CEO Flávio Souza spoke about the current level of growth in Brazil’s GDP and the recent adjustments to the economy. Souza underscored that there had not been a 3% increase per year since the beginning of the century. “The Brazilian economy’s sustainable pace of growth has increased. We believe that the country may have obtained an additional increase over the medium term with the historic approval of the Tax Reform Proposed Amendment to the Constitution,” he commented.

“These and other developments were recognized in the improvement of Brazil’s sovereign credit ratings, with upgrades in 2023 by two rating agencies and a few days ago, with the revision of Moody’s rating to one notch below investment grade,” said Souza.

The panel with the participation of Finance Minister Fernando Haddad at the Itaú Macro Vision conference was led by Itaú Unibanco chief economist Mário Mesquita.