BRASILIA: The initial approval of a public spending cap is a step in the right direction, but it will still take years and other tough reforms for Brazil to regain its coveted investment-grade rating, a senior analyst with S&P Global Ratings told Reuters.
In a late Friday telephone interview from the sidelines of the International Monetary Fund and World Bank meeting in Washington, S&P's Lisa Schineller said that to change Brazil's negative outlook the agency needs to see concrete action from the new government to shore up its depleted fiscal accounts.
"The approval is certainly an advancement, but we are at the early stages," said Schineller, adding that the government needs to move ahead with other measures to make the spending cap viable such as an overhaul of its expensive pension system.
"Now we are really focused on the details of reforms and what will be put on the table and what can be passed."
President Michel Temer, who replaced leftist Dilma Rousseff after her impeachment and will serve out the remainder of her term through 2018, said that the overwhelming support for the cap in a special congressional committee on Thursday is a sign it will be approved in Congress.
Its approval requires two votes in the plenary of the lower house and two more in the Senate, needing a three-fifths majority in each.
The proposal, which ties public spending growth to the rate of annual inflation for at least 10 years, is at the heart of Temer's austerity plan to close a yawning fiscal gap that cost Brazil its investment grade last year.
Schineller said that past experiences in India, Russia and Colombia show that a return to an investment grade rating is a difficult process that takes many years.
It is a "multi-year and multi-administration process to really turn around and consolidate the fiscal trajectory," said Schineller.
"When you look at the fiscal challenges in Brazil it is hard to see it (regaining an investment grade rating) happening very quickly."
Finance Minister Henrique Meirelles told Reuters on Thursday that the government was going to submit the pension reform in October and continue to work to cover a budget deficit that is expected to top 10 percent of gross domestic product this year. - Reuters
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