Despite assessing that fiscal risk remains high, BTG recognizes that the relationship between gross debt and GDP has improved (Image: rodrigobellizzi/Getty Images Pro)
Growing concern about the issue fiscal no Brazil has been increasing the long-term real rate premium between the country and USA (USA). THE BTG Pactual classifies this risk as “very bad” and, in a recent report, says “how bad” the situation is.
The bank's analysts point out that, despite the fall in long-term rates in the US (to 1.6%), rates have been rising in Brazil. As a result, the premium between countries increased from 3.2% in October 2023 to 4.8% in September this year.
For Bruno Lima, Carlos Sequeira, Guilherme Guttilla and Osni Carfi, the movement arises from increased uncertainty regarding compliance with fiscal rules for 2025.
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“The 2025 budget sent to Congress at the end of August is excessively dependent on uncertain revenue sources and no structural changes to expenditure have been announced,” they say.
Furthermore, the 2026 budget also presents a “significant risk”. This is because additional spending requirements before presidential elections may conflict with existing rules.
Fiscal risk remains high, but the relationship between debt and GDP has improved
Despite assessing that fiscal risk remains high, BTG analysts recognize that the relationship between gross debt and Gross Domestic Product (GDP) improved compared to January and August 2023.
“Although the market is increasingly concerned about the future of Brazil's fiscal accounts, market expectations for Brazil's debt have improved compared to what was estimated when the current government took office on January 23 or in mid-2023 ”, they state.
Today, the market predicts a gross debt/GDP ratio of 81.2% in 2025 — this percentage was 85.4% in January last year and 81.9% in August. For 2030, expectations are also better, at 88.9% compared to 91.8% and 89.3%, respectively.
When the comparison is with the month of May, the estimates for 2025 and 2030 have deteriorated and may explain the recent increase in long-term rates. For next year, the bet went from 79.9% to 81.2% and for 2030 it went from 86.5% to 88.9%.
Lima, Sequeira, Guttilla and Carfi also remember that it is interesting to note that market expectations regarding the debt/GDP ratio for 2024 have improved “a lot” since the beginning of 2022 — from around 85% and 87% to 78%. For 2025, projections are also better.