Brazil May Be Prevented from Refinancing Debt If It Does Not Reform, Says Government

Scenario would compromise GDP per capita and bring social cost to avoid adjustment measures


Brazil may be unable to refinance the public debt in the coming years if it does not carry out reforms that promote fiscal adjustment, the government said in a document published on Tuesday (27).

This information comes from the Federal Development Strategy text for Brazil covering 2020 to 2031, published in the form of a decree in the Official Gazette (DOU).

Jair Bolsonaro e Paulo Guedes em reportagem da Bloomberg sobre crise financeira
Jair Bolsonaro and the minister Paulo Guedes - Reprodução

In the document, the government predicts the behavior of different indicators such as GDP (Gross Domestic Product), GDP per capita, and HDI (Human Development Index) considering three different scenarios (of fiscal imbalance, reforms, and reforms with the advancement in schooling).

The portfolio argues that the imbalance scenario, with unchanged institutional and economic frameworks, would alienate investors and raise interest rates due to a crisis of confidence in the country's fiscal health. The situation would then lead to a significant need to cut discretionary (non-mandatory) expenses, which would jeopardize the evolution of GDP per capita and increase taxes.

The situation of public debt already draws the attention of investors. Due to the coronavirus pandemic, the country's public debt is expected to increase from 75% of GDP recorded last year to almost 100% at the end of this year.

The cost of debt is not only higher due to falling interest rates, but investors have been charging higher rates in the long run in the face of fears about the country's ability to honor its commitments.

Translated by Kiratiana Freelon

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