BRAZIL INSIGHT: Debt Could Near 100% of GDP in Extended Slump

  • Brazil’s public debt reached a record-high of 80.8% of GDP in May. The bulging primary deficit, the effect of a weaker currency on the external debt, and the contraction in GDP largely outweigh the benefits of an exceptionally low-interest rate for debt dynamics.
  • The debt-to- GDP ratio is poised to rise even further in the coming months. The critical question is how and when the government will be able to fix the problem.
  • Bloomberg’s economists expect public debt to reach 91.7% of GDP by year-end. This reflects their forecast for a 6.4% contraction in the GDP, a primary deficit of 10% of GDP, and a rather benign assumption that the currency strengthens to 4.80 reais per U.S. dollar.
  • The primary deficit will rapidly rise from 3.9% of GDP in May to at least 10%at the end of the year, with most of the slump coming through August.

 (Source: Bloomberg)