(Bloomberg) -- Moody’s Ratings raised Brazil’s credit outlook to positive, citing the implementation of structural reforms that have shored up growth prospects in Latin America’s largest economy.

The improved outlook, an upgrade from stable, adds to Brazil’s push to regain the investment-grade status it lost almost a decade ago. Moody’s rates the nation’s credit score two notches into junk at Ba2.

“More robust growth combined with continued, albeit gradual, progress towards fiscal consolidation, may allow Brazil’s debt burden to stabilize,” analyst Samar Maziad wrote in a statement. 

A fiscal framework presented by President Luiz Inacio Lula da Silva and a long-awaited overhaul of the country’s tax code have been welcomed by investors. But the moves haven’t completely dissipate fears over Brazil’s debt trajectory and long-term prospects for economic growth. Those were exacerbated in April after Finance Minister Fernando Haddad unveiled a less ambitious fiscal target for 2025 amid increased pressure for public spending.

Brazil’s dollar bonds were slightly up across the curve Wednesday, with notes maturing in 2034 gaining 0.3 cent. The reaction was muted in the $5 billion iShares MSCI Brazil, the largest US exchange-traded fund tracking Brazilian stocks. 

Trading of the currency and local stocks was closed for a national holiday, meaning the full reaction in Brazilian assets may only come Thursday when markets reopen.

Since cutting the country to junk in 2016, Moody’s flip-flopped on the outlook over the years before affirming the score and stable outlook in 2020 and 2022. Fitch Ratings and S&P Global Ratings last year upgraded Brazil to BB, also two notches below investment grade. 

“Although Lula may not be as orthodox as the market would like, he’s a known quantity and will maintain macroeconomic stability,” said Jared Lou, portfolio manager for emerging-market debt at William Blair in New York. “We’re optimistic on the trajectory.”

Even as Brazil moved to strengthen its central bank’s independence and implement labor and tax reforms over several administrations, its current Ba2 rating reflects the country’s relatively weak fiscal strength amid a high debt burden, according to Moody’s. It added there are still risks to the execution of fiscal consolidation.

In a statement following the decision, Brazil’s finance ministry said it was committed to a sustainable trajectory for public accounts, including improving tax collection and limiting the dynamics of expenses. Haddad said in an X post that Brazil has “a lot to do” as it restores economic, social and environmental credibility. 

--With assistance from Martha Beck and Carolina Gonzalez.

(Adds commentary from analyst, Brazil’s finance minister starting in eighth paragraph.)

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