Fitch says Brazil's economic performance does not reduce uncertainties about fiscal policy (Image: Reuters/Brendan McDermid)
A Fitch Ratings stated this Thursday that Brazil's current fiscal policy and its effects are not keeping up with the strong performance of the national economy and that challenges for the federal government are expected to persist and grow next year.
The risk agency highlighted that fiscal performance has been weaker than expected in relation to initial budget projections for 2024 and that a mismatch between fiscal policy and government growth Gross Domestic Product could affect the country's risk rating, currently at “BB”.
According to Fitch, attempts by the economic area to boost revenues, with emphasis on the use of dividends from the National Bank for Economic and Social Development (BNDES) and money forgotten in banks, have proven unstable, as they rely on extraordinary sources or measures with limited impacts over time.
“The main revenue measures are transitory or have uncertain benefits,” Fitch said in a note. “These improvised measures demonstrate a commitment to fiscal targets, but do not offer structural fiscal improvements.”
On the expenditure side, the agency highlights a higher-than-expected growth in pension spending, which led to cuts in discretionary spending, as one of the main challenges in achieving fiscal targets in the coming years.
“Indexation and allocation of resources will maintain pressure on social expenditure in the coming years, requiring a greater reduction in discretionary expenditure to compensate for what may eventually become unviable,” he said.
Fitch projects that the debt/GDP ratio will increase from 74.4% of GDP in 2023 to 77.8% in 2024 and 83.9% by 2026, numbers higher than previously expected, and which should distance Brazil from the category median “BB” of 55%.