Brazil's debt and deficit hit record highs in May, outlook darkens

BRASILIA (Reuters) - Brazil’s national debt and public-sector deficit surged to record highs in May, figures showed on Tuesday, reflecting the squeeze on finances from a second full month of social isolation and quarantine to curb the novel coronavirus pandemic.

The deterioration in the public accounts supports Treasury Secretary Mansueto Almeida’s comments on Monday that debt will likely exceed 95% of gross domestic product this year and the primary budget deficit is on course to top 11% of GDP.

Economy Minister Paulo Guedes went further on Tuesday, warning that the debt and primary deficit could rise above 100% and 15% of GDP, respectively. The Economy Ministry is expected to announce new debt and deficit forecasts later in the day.

Brazil’s gross debt rose to a record 81.9% of GDP in May, the central bank said, higher than the 81.3% forecast in a Reuters poll of economists, while net debt rose to 55% of GDP, also higher than expected.

The overall public sector posted a primary budget deficit excluding interest payments of 131.4 billion reais ($24 billion) in May, the central bank said, less than the 135 billion reais deficit forecast in a Reuters poll, but also a record.

“The deterioration of fiscal accounts is increasing, and we believe the main risks are still ahead of us,” economists at Citi said in a note on Tuesday.

“The pressure to increase spending is and will probably remain high, so the risks are biased towards a larger deterioration of fiscal accounts,” they said.

As a share of GDP over the 12 months to May, the primary deficit widened to 3.9%, the widest since the data series began in 2002, according to central bank figures.

The government insists that emergency spending must be temporary, its fiscal rules such as the spending cap be honored, and that a resumption of the austerity agenda is critical to ensuring a sustainable economic recovery.

Reporting by Jamie McGeever; Editing by Jonathan Oatis and Bernadette Baum