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Goldman Sachs Expect Gross Debt Dynamics To Remain On Upward Trend

BRAZIL
  • The smaller than expected BRL 6.7bn primary budget surplus in April left the 12-month rolling primary deficit at BRL 267bn, or 2.4% of GDP. Including net interest payments, the overall fiscal deficit is tracking at 9.4% of GDP on a 12-month basis. Gross government debt also continues to edge up, rising to 76.0% of GDP in April, from 75.7%.
  • The disappointing fiscal data continue to weigh on the Brazilian real, with USDBRL now 0.6% higher on the day, approaching key short-term resistance at 5.1969, the Apr 30 high. DI swap rates are also underperforming, up by ~10bp across much of the curve.
  • Goldman Sachs expect the consolidated public sector primary balance to remain in the red for the foreseeable future, and the gross debt dynamics to remain on an upward trend. In their view, placing the debt dynamics on a structural sustained declining trend and building fiscal buffers remain a key macro challenge, which would require structural primary fiscal surpluses above 2% of GDP. They think that such an outcome is highly unlikely in the near term.
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