The political and economic challenges Brazil faces remain considerable, and we now expect a more prolonged adjustment process--a slower correction in fiscal policy as well as another year of steep economic contraction. With general government deficits and net debt averaging 7% and 60% of GDP, respectively, during 2016-2018, and our revised assessment of Brazil's contingent liabilities, stemming from Petrobras' debt burden, to moderate, we believe there is no longer sufficient policy flexibility for us to distinguish between the local and foreign currency ratings on Brazil. We are lowering the long-term foreign currency sovereign credit rating on Brazil to 'BB' from 'BB+' and the long-term local currency rating to 'BB' from 'BBB-'. The negative outlook reflects that we believe there is
