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According to media outlets, different financial indicators are beginning to show a worsening in the perception of fiscal risk in Brazil. De-anchoring the inflation target, rising dollar, falling stock markets and worsening country risk are some of them. According to economists and political analysts, the deterioration in expectations is a reaction to the advance of the proposed amendment to the Constitution that will create social benefits. The proposal generates R$ 41 billion in exceptional spending until the end of 2022, with chances of being extended in the following years.
Distancing Between the Goal and the Market Projections
For experts, there is a clear indicator of this growing problem: the distancing between the inflation goal for next year and the market projections. The greater the difference, the greater the perception of fiscal risk in the face of a worsening of public accounts. While the Central Bank works to meet the 3,25% inflation target, the market is already projecting a 5,5% rise in prices, therefore, a difference of 69% (de-anchoring).
Interest Rates
The increase in fiscal risk has led Jair Bolsonaro’s government to pay the highest interest rates on the issuance of new public debt bonds since the end of Dilma Rousseff’s government. Government bonds called NTN-F are paying now 13,21% in interest rates, the highest since April 2016. The Treasury carries out periodic auctions for the issuance of public debt securities. The objective is to obtain resources to finance its financial needs in exchange, investors receive money from interest rates. An increase in the cost of debt will be reflected in the effort that future governments will need to make to meet these obligations.
