Record Brazil deficit, debt figures highlight huge public finances challenge

BRASILIA: Brazil's national debt rose to a record 85.5% of gross domestic product and the public sector registered a record $36.5 billion primary deficit in June, the central bank said on Friday, as the Covid-19 crisis hammered the government's finances.

The figures were greater than economists had expected, and come after senior Economy Ministry and Treasury officials this week reiterated their commitment to the government's spending cap rule, widely seen as public finances' main pillar.

"We expect the fiscal and public debt picture to deteriorate significantly throughout 2020," said Alberto Ramos, head of Latin American research at Goldman Sachs, projecting a public sector primary deficit of at least 13% of GDP.

"Addressing the unsustainable public debt dynamics and building fiscal buffers remains, unquestionably, the key macro challenge facing both the executive and legislative branches once the pandemic is brought under control," he said.

The public sector deficit excluding interest payments was 188.7 billion reais ($36.5 billion) in June, the central bank said, more than the expected 163.5 billion reais shortfall to bring the deficit in the first half of the year to 402.7 billion reais.

The deficit in the same period last year was just 5.7 billion reais, the central bank said. The accumulated primary deficit in the 12 months through June was equal to 6.38% of gross domestic product. The Economy Ministry on Thursday said it expects a public sector primary deficit of 812.2 billion reais, equal to 11.3% of GDP.