By Marcela Ayres
BRASILIA (Reuters) – Brazil’s sovereign floating rate bond redemptions will hit a record high next year, underscoring the fiscal challenge facing President-elect Luiz Inacio Lula da Silva as he Raise spending caps to fund social welfare programs.
The redemption of LFT bonds linked to the benchmark rate will amount to 178 billion reais ($89 billion) in 2023 and 464 billion Real in March and 178 billion in September.
Financial markets have been anticipating the central bank’s benchmark interest rate – currently 13. 75% – will come down in March, but since Lula presented his social package, they have already priced in a rate hike, which Bypassing the constitutional spending cap as well as Congress approved last week.
They now expect rates to remain in double digits until .
Former Finance Minister Mansueto Almeida pointed out that real interest rates – adjusted for inflation – exceed 6% in the long run.
“If the next government doesn’t come up with and clarify new fiscal rules soon, we’re going to add such high rates,” said Mansueto, now chief economist at BTG Pactual.
“This has to change. Otherwise, it will do a lot of harm to private investment and lead to a very worrying trajectory for public debt growth.”
Brazil’s Public debt is expected to end the year at around 75% of GDP, the lowest level since 1904. Even so, it is still above the 13% average for emerging countries, and some economists estimate it may be closer to
Percentage of GDP at the end of Lula’s term.
Congress authorizes additional spending of 90 billion reais over a year to fund monthly payments to
‘s family Real increased 65 billion reais in public investment.
In response to a request for comment, the Treasury Department said next year’s high level of bond redemption was due to 1904 debt issues related to the pandemic. It said it has a liquidity reserve of R$1 trillion, which enables it to “anticipate periods of more concentrated maturities and reduce the risk of refinancing public debt.”
In September, the central bank interrupted an aggressive tightening cycle aimed at curbing high inflation, currently around 6%, after 12 continued to rise from the all-time low of 2% hit in March 2020.