Brazil will end 2020 with the worst fiscal situation among the largest emerging countries. With challenging conditions in terms of both expenditure and growth, the country spent more to combat the crisis caused by the Covid-19 pandemic, which brought its debt to almost double the average for these markets.
The bill, according to experts, may yield Brazil a less bad economic performance than that of its international peers this year, but this will come at the expense of a strong deterioration in public accounts, which threatens to worsen the country’s risk rating. .
The poor fiscal situation in Brazil is only overcome by smaller countries, such as Angola, Libya and Oman, according to a survey by the International Monetary Fund (IMF). Emerging countries comparable to the Brazilian economy, such as Mexico, Turkey and South Africa, have a more relaxed situation.
“Brazil was worse among emerging markets, spending increased more”, says Felipe Camargo, economist for Latin America at the British consultancy Oxford Economics. “The country chose to get out of the crisis faster with a stronger fiscal impulse, spending more money,” he says. “Brazil is at risk of losing another rating note.”
In Latin America, for example, the Oxford economist pointed out that Brazil had the biggest increase in debt, with an increase of 20 points this year, which will push the debt to close to 100% of the Gross Domestic Product (GDP). In Mexico, there were 11 points more, Peru had 13 points, Colombia, 14 and Chile, 11.
On the positive side, Camargo pointed out that Brazil’s debt is 90% in national currency, while other emerging countries have an important part in foreign currency, which is more difficult to finance. Even so, he argues that the country is unable to sustain such a high debt.
“Brazil has a completely different reality from other countries, such as Chile and Peru, which had a healthier situation, with a fiscal cushion to expand spending. Brazil did not have it. If it was fragile before, it was more fragile”, evaluates the Goldman Sachs chief economist for Latin America, Alberto Ramos.
According to Ramos, the urgency in approving reforms that would lead the country to a healthier relationship between revenues and expenses was already a reality before the pandemic. After the shock it became more pressing. This is because, in addition to the fragile situation of its public accounts, Brazil was already growing much less than other emerging countries. “Brazil was already at the top of concerns and is still there. Now, it has a level of indebtedness that is still much higher than any other emerging country.”