Brazil’s federal debt rose to 3.88 trillion Reais ($1.03 trillion) in December, up 8.9% from 3.56 trillion Reais a year earlier, and is expected to rise further this year, the Brazilian Treasury said. The Treasury predicts public debt this year will swell to somewhere between 4.1 trillion and 4.3 trillion Reais, the upper end of which would represent an increase of almost 11%, it outlined in its annual financing plan.
Brazil’s net financing needs this year are also expected to increase, by almost 20% to 779.7 billion Reais from 651.1 billion last year, according to the Treasury’s projections.
The figures are the new government’s first official forecasts for Brazil’s debt and financing needs this year. President Jair Bolsonaro and his administration have drawn up an ambitious economic reform agenda, which foreign investors have welcomed.
Yet their share of Brazil’s debt holdings fell last year, ending December at 11.22%, down almost a full percentage point from 2017. Treasury is confident that will rebound this year.
“Foreign investors had a series of problems with emerging markets last year. But I was in New York in December ... and investors are quite optimistic: they like the economic agenda we’ve presented,” Mansueto Almeida, Secretary of the Treasury, told reporters.
Almeida said that quick approval of the government’s reforms would improve Brazil’s outlook and allow Treasury to extend the average maturity of its borrowing and issue more fixed rate paper.
“Ahead of the elections last year they decided to reduce the duration of their borrowing, and they’re basically saying now that they intend to continue this strategy, which makes sense,” said one fund manager in Sao Paulo.
Brazil’s benchmark Selic interest rate is at an all-time low of 6.50%, and there is a growing groundswell of opinion that it will not rise much this year, if at all.
According to Treasury forecasts, Letras Financeiras do Tesouro, short-term notes linked to the Selic rate, will account for between 38 and 42% of the federal debt this year, up from 35.5% last year.
Fixed rate bonds will account for between 29 and 33% of the total debt stock, compared with 33% last year, while inflation-indexed bonds’ share is expected to be somewhere between 24 and 28% versus 27% last year, Treasury said.