By Luciana Magalhaes and Fabricio de Castro
SAO PAULO (Reuters) - Fitch is unlikely to upgrade Brazil's credit rating in the near-term, despite its better-than-expected economic growth, because of doubts the country will be able to significantly improve public finances, a director in its sovereign ratings group said.
Fitch currently rates Brazil's credit as BB, two notches below investment grade, with a stable outlook.
"To raise Brazil's credit rating, we would need to have greater confidence in the government's ability to deliver primary surpluses," Todd Martinez, a senior director and co-head of Americas sovereigns said on Thursday.
Moody's (NYSE:MCO) this week lifted Brazil's credit rating to only a notch below investment grade status, a vote of confidence to Latin America's largest economy, which lost its low-risk score nearly a decade ago.
Fitch, however, is keeping a more conservative stance than Moody's, which raised the country's long-term issuer and senior unsecured bond ratings to Ba1 from Ba2, with a positive outlook.
Martinez said economic activity in Brazil has continued to surprise on the upside, with economists expecting gross domestic product to grow at about 3% in 2024.
"But public finances remain a weak spot, with spillovers into confidence, the exchange rates and thus growth," he said.
Martinez, however, praised President Luiz Inacio Lula da Silva's administration's efforts to improve the fiscal situation, with changes to its tax rules and a more recent agreement to roll back payroll exemptions.
But despite such moves, Fitch expects the federal primary deficit to rise to 1.0% of GDP in 2025 from 0.6% this year, before falling to 0.8% in 2026.
Based on the agency's current expectations for growth and interest rates, that would lift its debt-to-GDP ratio from 77.8% this year to 83.9% by 2026.
Lula and his economic team are aiming for Brazil to recover the investment grade status it lost in 2015.
During a visit to New York at the end of September, he met with representatives of the three major rating agencies to discuss Brazil's credit score.
Like Fitch, S&P rates Brazil at BB with a stable outlook.