Fitch classifies zero deficit outlook for 2024 as “increasingly doubtful”

The risk rating agency Fitch estimates that the central government’s primary deficit should close the year with a deficit equivalent to 2.2% of GDP, after a 2022 with a surplus of 0.5% of GDP. According to the report, presented this Friday (15), the country’s fiscal deterioration in 2023 due to the weak growth in government revenues and the “large increase in spending”.

“The authorities have, so far, resisted pressure to change the fiscal target, but this remains a possibility for 2024 when the revenue situation should become clearer,” says the report. And Fitch adds that “the apparent ambiguities in the new framework and possible changes in targets could undermine the effectiveness of the fiscal framework as an anchor for fiscal consolidation.”

However, Fitch highlights that the number is affected by 0.9 percentage points from the payment of late court orders. If interest payments are taken into account, the estimate is -8%, which is “well above the average for (countries rated) BB, which is 3.3%”, he warns.

Controlling inflation was also highlighted in the document, but with emphasis on “unanchoring expectations” related to pressure on prices, which point to “fiscal uncertainties” as the main problem. “This has reinforced the cautionary bias of the Central Bank of Brazil, and Fitch believes that the autarchy may adopt a slower pace of (monetary) easing if external conditions and domestic policy deepen the unanchoring of inflation expectations”, highlights the report.