...The ratings on Minas Gerais reflect its satisfactory financial management, moderate contingent liabilities, average budgetary flexibility, and weak economy. We expect the state's budgetary performance to remain weak in 2016 and 2017, compared with our view of it as strong in 2014. The state's high debt and weak liquidity constrain its ratings. The Feb. 17, 2016, downgrade of Minas Gerais was based on Brazil's downgrade and on the state's weaker budgetary performance, as seen in wide fiscal deficits during 2015. We expect Minas Gerais to continue posting double-digit fiscal deficits in the next 12-18 months as it struggles to stabilize its finances amid recession. According to our base-case scenario, Minas Gerais' operating deficit will deepen to 4% of operating revenue in 2016 and will start decreasing in 2017, reflecting the fiscal adjustment the state recently has begun to implement. The latter consists of a recently announced a R$2 billion budget cut, the state tax increases, a tighter...
