Brazil’s economic growth and fiscal outlook this year are shaping up to be worse than official government forecasts, making a return to austerity and reforms next year all the more pressing, Treasury Secretary Mansueto Almeida said
Almeida said the public sector primary deficit this year excluding interest payments could reach 800 billion reais (US$ 152 billion), or more than 11% of gross domestic product, while the economy is set to shrink around 6-7%.
That compares with current government projections of a primary deficit of around 700 billion reais, or almost 10% of GDP, and the economy shrinking 4.7% due to the COVID-19 crisis.
Speaking in an online live event hosted by Citi, Almeida said that under these circumstances the nominal public sector deficit, which includes interest payments, could hit 17% of GDP.
“All the growth in public sector expenditure will start and finish in this fiscal year, which means we are not contaminating next year, except for the revenue side,” Almeida said.
“I’m not worried now about debt sustainability. I could be worried, one or two years from now, if we fail to approve anything (on economic reforms) or for some reason we don’t comply with the spending cap,” he said.
Almeida insisted the government’s agenda of cutting public spending, speeding up privatizations and concessions, and pushing ahead with tax reform will help the economy rebound and attract increased private-sector investment.
This will also show credit ratings agencies that “we are doing our homework” and keeping Brazil on track to regain its investment grade status at some point.
Still, Brazil’s debt-to-GDP, set to hit a record 95% this year, might not peak and start falling until 2025 or 2026, Almeida said.
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According to latest official US Treasury TIC data tracks Major foreign holders of US Treasury securites, during the period from end of August 2019 through end of April 2020, Brazil holders sold off $53.9 billion in US Treasury securities, which at a rate of (more or less) 5.20 reais to one US dollar equals 280 billion reais. Here is the linkJun 26th, 2020 - 10:59 am 0
Brazil Central Bank in its notes website is on the record for defending its currency. But there has been little MSM and social media chatter on this theme. Brazil used to be the #3 holder of US Treasury securities, now it has fallen to 6th place.
EricJun 26th, 2020 - 03:23 pm 0
Do you see this as a strategy to maintain the currency value at the strong position it's holding at, or do you expect a devaluation?
Hi Chicureo,Jun 26th, 2020 - 08:34 pm 0
I am not an economist. Not certain whether the currency value is at the strong position it's holding at though it may be holding within the perameters of certain model ranges, developed by official government, banks, money funds, rogue speculators who arbitrage, do overnight money, etc. Bremner has someone quite good who follows Brazil and was just talking about the Real at a CEBRI webinar. Also Arko Advice may offer some perspectives as to strategy, tactics. Since the crisis has taken on some elements similar to the Watergate drama, I would categorize what we are seeing as a non-devaluation devaluation. Boa sorte!