As the world's top investment manager and financial market journalist, I bring you the latest insights on Brazil's economy. According to Fitch, despite the country's better-than-expected economic performance, public finances are still a concern. This could lead to a tougher 2025 and a significant increase in public debt.
Fitch's report highlights that Brazil's recent economic success may be due to the government's relaxed fiscal policies. However, if fiscal performance weakens during an economic slowdown, the situation could worsen. This uncertainty is a key vulnerability for Brazil's sovereign rating.
While major ratings agencies have upgraded Brazil's rating, the country is still two notches away from regaining its investment grade status lost in 2015. President Lula has been meeting with agencies like Standard & Poor's and Moody's to discuss Brazil's situation.
Despite efforts to increase revenues, Fitch notes that some measures are temporary and do not address structural fiscal issues. The agency predicts Brazil will meet its fiscal target this year but expects the primary deficit to increase to 1% of GDP in 2022.
Furthermore, Brazil's gross debt-to-GDP ratio is projected to rise to 77.8% this year and reach 83.9% by 2026. This rapid increase widens the gap to the 'BB' category median of 55%.
Analysis:
In summary, Brazil's strong economic performance is not translating into improved public finances, leading to concerns about the country's fiscal stability. This could impact the sovereign rating and investment grade status, affecting the cost of borrowing for the government and businesses. Investors should monitor Brazil's fiscal policies and debt levels to make informed decisions about their portfolios.