Brazil economy could fall 7%, deficit top 11% of GDP, Treasury secretary says

BRASILIA (Reuters) - Brazil’s economic growth and fiscal outlook this year are shaping up to be worse than official government forecasts, making a return to austerity and reforms next year all the more pressing, Treasury Secretary Mansueto Almeida said on Wednesday.

Almeida said the public sector primary deficit this year excluding interest payments could reach 800 billion reais ($152 billion), or more than 11% of gross domestic product, while the economy is set to shrink around 6-7%.

That compares with current government projections of a primary deficit of around 700 billion reais, or almost 10% of GDP, and the economy shrinking 4.7% due to the COVID-19 crisis.

Speaking in an online live event hosted by Citi, Almeida said that under these circumstances the nominal public sector deficit, which includes interest payments, could hit 17% of GDP.

“All the growth in public sector expenditure will start and finish in this fiscal year, which means we are not contaminating next year, except for the revenue side,” Almeida said.

“I’m not worried now about debt sustainability. I could be worried, one or two years from now, if we fail to approve anything (on economic reforms) or for some reason we don’t comply with the spending cap,” he said.

Almeida insisted the government’s agenda of cutting public spending, speeding up privatizations and concessions, and pushing ahead with tax reform will help the economy rebound and attract increased private-sector investment.

This will also show credit ratings agencies that “we are doing our homework” and keeping Brazil on track to regain its investment grade status at some point.

Still, Brazil’s debt-to-GDP, set to hit a record 95% this year, might not peak and start falling until 2025 or 2026, Almeida said.

Reporting by Jamie McGeever in Brasilia; Editing by Matthew Lewis