Brazil fiscal credibility hurt by Senate vote-Fitch

Fri Apr 11, 2008 12:40pm EDT
NEW YORK, April 11 (Reuters) - The Brazil Senate's approval of measures that might increase government spending and boost its pension deficit are negative to the country's "fiscal credibility," Fitch Ratings said on Friday.
Brazilian senators passed on Wednesday projects that, if approved by the lower house, would determine that public pensions rise as much as the minimum wage, raising spending by some 4.5 billion reais this year, according to government estimates reported by the local media.
Some additional billions of reais could be directed to Brazil's health system in 2008, according to another project passed by senators. Even if approved by the lower house, President Luiz Inacio Lula da Silva could veto the measures.
"If enacted into law, these measures could undermine the progress made in containing the social security deficit in recent years," Shelly Shetty, Fitch's lead analyst on Brazil, said in a statement.
"Moreover, increases in current spending could increase budgetary rigidities, potentially leading to a further deterioration of the quality of Brazil's spending," she added.
Shetty said Brazil should instead cut current spending to allow for tax cuts that would boost investment and growth.
Fitch currently rates Brazil at "BB+," one notch below investment grade, with a stable outlook. (Reporting by Walter Brandimarte; Editing by Leslie Adler)