The National Treasury will face an enormous challenge at the beginning of next year. An invoice of R $ 643 billion in federal government debt is due between January and April. The figure is more than double the average recorded over the past five years.
In four months, the Treasury will have to pay investors the equivalent of 15.4% of the Brazilian domestic debt, at a time when distrust with the sustainability of public accounts is growing. To pay this debt, the government needs to finance itself even more and there is distrust among economists about the country’s ability to issue bonds in the face of uncertainty in the adjustment in public accounts.
The Central Bank has even given a name to the node that will have to help untie: fiscal shock. The situation has worsened in recent months for two reasons. With the pandemic, the government had to spend more and the public debt should reach 100% of GDP by the end of the year, considered a very high level for emerging countries. It would be a manageable situation if investors saw the prospect of reversal in the medium and long term.
But it is feared that eventual populist measures to re-elect President Jair Bolsonaro will prevent an adjustment in public finances. The delay in responding to the worsening of accounts and the postponement by the president of the financing model for the new substitute social program for Bolsa Família until after the elections fueled the climate of nervousness in the market.
In view of the increased perception of the risk of deterioration in public accounts, the Treasury faces increasing difficulties in selling long-term securities. He began to sell securities with an increasingly shorter term, from six months (due in April) to one year (October), at the same time that he needed to finance an increasing deficit, the result of spending in the pandemic.
The fiscal situation ended up causing a strong concentration of maturities in the first months of 2021. This volume may increase even more until the end of the year because the Treasury continues to have to seek financing through short-term papers.
“The shortening of the issuance period and the consequent increase in the concentration of maturities in 2021 represents a risky strategy. If the fiscal situation remains uncertain or there is a risk event (external or internal) at the beginning of next year, the Treasury would be in a situation of having to roll high volumes at any price ”, evaluated Sergio Goldenstein, an independent analyst at Omninvest and ex Head of BC’s Open Market Operations Department (Demab).
In other words, it would have to pay more, raising the risk of debt getting out of control, in a vicious circle of deteriorating finances that could force even the Central Bank to raise basic interest rates if inflation gets out of control.
The request of Estadão, the Treasury detailed maturities in the first four months of the year based on paper sales in September and October, when the situation worsened and the government had to accelerate funding with shorter terms. Even for LFTs (linked to the basic interest rate), securities considered the safe haven of debt, investors started to charge a discount (an additional remuneration as a risk premium).
In a single month, in April, maturities will total R $ 315 billion. It is almost the same volume as all maturities in the first four months of this year: R $ 356.8 billion. In 2018, the maturities of the securities totaled R $ 275.4 billion until April. To have an idea of the size of maturities at the beginning of next year, 2020 started with a need for total financing of domestic debt in the market of R $ 808.2 billion.
The undersecretary of public Treasury debt, José Franco de Morais, guaranteed that by the end of December the government will have in cash all the money necessary to pay the maturities of the first four months of the year. This reserve, dubbed the debt liquidity cushion, allows the Treasury not to hold sales auctions to roll over debt in the event of greater market turmoil that makes financing difficult.
Rollover is the term used to exchange past-due bonds from an old debt for new ones to mature. According to Morais, the mattress reduces the risk of debt financing. The mattress was also reinforced with the transfer of R $ 325 billion from BC profits to the Treasury. The information is from the newspaper The State of S. Paulo.
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