(Bloomberg) -- S&P Global Ratings lifted Brazil’s credit score after the recent approval of an overhaul of the country’s tax code added to a series of economic reforms that have been implemented in the past few years. 

S&P raised Brazil’s sovereign rating by one notch to BB, two levels below investment grade, putting it on par with Guatemala and Dominican Republic. The outlook is stable.

“While it will be implemented gradually, the reform is a significant overhaul of the tax system and will likely translate into productivity gains over the long term,” the ratings firm said in a statement Tuesday. 

Just last week, Brazil’s Congress finalized a drastic overhaul of the country’s tax code, completing an effort that had eluded lawmakers and leaders for three decades. The plan, which aims to simplify one of the world’s most complex systems, was a priority of President Luiz Inacio Lula da Silva and Finance Minister Fernando Haddad as part of a broader economic agenda meant to help shore up the country’s finances. 

Outlook

S&P, which cut the nation’s credit score to junk back in 2015, had revised its outlook to positive in June, the first of the major three rating firms to improve its views on the credit profile of Latin America’s largest economy. Fitch Ratings upgraded Brazil to BB in July. The nation is scored Ba2 by Moody’s Investors Service.

“Three notches below investment grade for a country with a very solid external position was exaggerated,” said Alberto Ramos, chief economist for Latin America at Goldman Sachs Group Inc. “S&P is now at par with Fitch and Moody’s but there is still a long road ahead to recover the coveted investment grade seal.”

Brazilian assets briefly extended gains on the back of the upgrade, with the real gaining as much as 1.1% against the US dollar. It was up 0.9% as of 4:20 p.m. in Sao Paulo. 

The stable outlook reflects expectations of a “gradual” progress in the fiscal adjustment, while strong commodity output should shore up the nation’s external position, S&P said.  

--With assistance from Maria Elena Vizcaino and Sydney Maki.

(Updates with context, analyst commentary starting in second paragraph.)

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