Brazil will face fiscal challenges in 2022 despite last year's consolidation, says Fitch

Fitch Ratings logo at company offices in London

By Luana Maria Benedito

SAO PAULO (Reuters) – Brazil will face fiscal difficulties this year despite the consolidation seen in 2021, rating agency Fitch Ratings said on Monday.

In a note, Fitch said that weaker growth, expected deterioration in the primary balance and higher interest rates will prevent a repetition of the positive performance observed in 2021, when the Brazilian consolidated public sector recorded a primary surplus of 64.727 billion reais, the first in eight years, according to data from the Central Bank.

According to the agency, “the latest fiscal data from Brazil confirm our view that 2021 would be a year of rapid consolidation” after the impact of the Covid-19 pandemic, and, in some metrics, they came out better than Fitch’s expectations. .

The country’s gross debt, for example, ended last year at 80.3% of the Gross Domestic Product (GDP), while the risk rating agency expected a rate of 80.9%. At the end of 2020, the debt stood at 88.6% of GDP.

According to Fitch, public sector revenue results “may have benefited from some structural changes driven by the pandemic, including greater formalization, digitization and other business reorganisations”.

In addition, isolated factors – such as BNDES prepayments to the Treasury – also helped to reduce the debt-to-GDP ratio, Fitch said.

In mid-December, Fitch Ratings reaffirmed Brazil’s foreign currency sovereign credit rating at “BB-“, with a negative outlook, which reflects negative risks to the economy, public finances and debt trajectory.