By Marcela Ayres
BRASILIA (Reuters) – Brazil’s government acknowledged growing risks of public debt renegotiation, with a record level for 2025 due to an increased share of debt exposed to short-term interest rates, and stressed the need for fiscal consolidation to improve the outlook.
In a fiscal risks annex to the 2026 budget guidelines bill sent to Congress on Tuesday, the Treasury estimated that 62.1% of federal public debt will be sensitive to short-term interest rate changes this year – a record high since the series began in 2008.
The share was previously projected at 56.6% in last year’s document.
The measure includes debt tied to the Selic policy rate and securities maturing within 12 months, whose refinancing costs are also directly affected by the benchmark interest rate.
The Treasury now sees this share reaching 58.9% in 2028, up from a previous estimate of 51.2%.
Latin America’s largest economy finances an unusually large portion of its debt through floating-rate bonds designed to appeal to investors during periods of market stress.
The Treasury leaned heavily on these last year amid concerns over the sustainability of public finances in the face of fast-growing mandatory expenditures, leaving Brazil with its worst debt composition in two decades.
This debt sensitivity is increasing as the central bank tightens policy to curb persistent inflation. Since September, policymakers have raised rates by 375 basis points to 14.25%, signaling a further increase in May.
The government acknowledged the rise in floating-rate debt is linked to uncertainty over fiscal consolidation, which has hindered the issuance of long-term fixed-rate or inflation-linked bonds.
“Reversing the trajectory of market risk requires a more favorable environment for fiscal consolidation and lower-cost issuances,” the annex said.
The government on Tuesday proposed a primary surplus of 0.25% of gross domestic product for next year, which would mark the first under leftist President Luiz Inacio Lula da Silva in his current term.
Itau bank said on Wednesday that the proposal does not dispel the view that the current fiscal adjustment pace is insufficient to stabilize public debt, projecting a 0.8% of GDP deficit next year.
(Reporting by Marcela Ayres; Editing by Alistair Bell)
Comments