The Brazilian government’s debt structure has undergone a significant transformation, with a heavy concentration of LFT bond issuances resulting in 45% of the country’s public debt now tied to the floating Selic rate. This shift, largely unnoticed by many analysts, leaves Brazil vulnerable to interest rate hikes.
For every percentage point increase in the Selic rate, Brazil’s interest payments rise by R$47 billion annually, approaching levels seen during the worst of the Dilma administration. The Central Bank’s Copom is meeting to discuss a new rate hike cycle to combat rising inflation amidst a heated economy facing challenges from dry weather and wildfires.
Despite a favorable international scenario, Brazil’s fiscal approach raises concerns as temporary revenue measures fund permanent expenses, eroding confidence in the fiscal framework. With a real interest rate equilibrium near 5%, the country’s debt-to-GDP ratio could reach 95% within a decade without structural spending changes.
Addressing these issues now can prevent a negative feedback loop of increasing debt and interest payments, safeguarding Brazil’s long-term economic stability.
[ad_2]
Source link
