Fiscal Deterioration Could Get Out Of Hand

The first half of 2009 saw perhaps the biggest deterioration of the Brazilian federal government's fiscal position in almost a decade, when the primary fiscal surplus dropped to it's lowest level as a percentage of GDP since August 1999, reaching 2.04% of GDP in the 12-months to June. Although debt servicing costs for the Brazilian authorities remain within manageable parameters, we caution that Brazil's creditworthiness may take a hit at some stage going forward. Our substantially below consensus primary fiscal balance forecast of 1.20% of GDP is starting to look increasingly on target, as the Brazilian authorities continue to finance nationwide infrastructure development programmes. Meanwhile, tax revenues have been drying up as the economy through its recessionary cycle. Going forward, the picture is hardly more reassuring in light of the government pledging an additional US$344bn for a second-round Growth Acceleration Programme in 2010, in the run up to the presidential election.

To read the full article, please choose one of the following options: