Oct 23, 2016

Brazil: Expenses with Interest Payments of the Public Sector

Brazil: Expenses with Interest Payments of the Public Sector 

The real interest rates in Brazil have always been among the highest in the world, and this is reflected in government disbursements for the payment of public debt costs.
As we can see in the chart, government spending with the payment of debt interest fluctuated in today's values between BRL 250 and BRL 350 billion between 2014 and 2014, and accelerated from the end of 2014, with a peak close to BRL 600 billion in early 2016, and then was reduced for BRL 435 billion in August 2016.

Source: Central Bank of Brazil

The acceleration of interest expense coincides with the increase in public debt (see post here).

The prospect is that real interest rates in Brazil will fall, as has occurred in major economies of the world. A lower rate of interest should reduce the need for government to pay interest in the medium term, but in the short term, the costs must also reflect the high interest rates of the current stock of government securities.

Oct 16, 2016

Brazil: Exports of Commodities

Brazil: Exports of Commodities

The fall in commodity prices, which began in 2012, and was stronger in the second half of 2014, had a significant impact on the value of exports of Brazilian commodities.
Exports of primary products reached the value of USD 124 billion in annualized values ​​in April 2012 and currently stand at USD 80 billion in the last 12 months.

The fall in commodity prices can be explained by the slowdown in global growth, especially in China, which is the largest importer of Brazilian products. In addition to slowing production, we can also cite as causes excessive investment and increased capacity above the demand growth in various products, including, iron ore, which has been the main product of Brazilian export basket.

Figure 1 attached shows the value of Brazilian exports of basic products accumulated in the last 12 months. As we can see, growth was slow between 1990 and 2002, and accelerated between 2003 and 2012, except for 2009. As of 2012, exports began to slow down until the last data available, which is September 2016. There is a not currently significant change in global growth prospects, especially in China, although the volume of investments in commodities decelerated significantly in some sectors. It is unlikely that the exported value returns to 2002 levels, but growth from the current level are also limited.

Source: www.mdic.gov.br

Sep 18, 2016

Brazil - Public Expenditure Growth

Brazil - Public Expenditure  Growth

The chart below shows the growth rate above inflation of federal government spending, calculated by the sum of 12 months divided by 12 months immediately prior. It does not include the expenses of the states and municipalities.

The average rate of growth of public spending was approximately 5% above inflation between 1998 and 2016. The Social Security benefits spending grew about 6% above inflation over the same period.

The expenditure growth was only possible because there was also growth in revenues in the period, related to the expansion of GDP and rising international commodity prices.

However, from 2014, expenses kept the growth trend, while the stagnation of the economy has reduced expenditure growth, resulting in the rise in public debt.

Note that the Social Security benefits have structural feature, and the trend is growing maintenance above inflation, considering the current rules. Benefits of Social Security is now the equivalent of about 40% of total expenditure, and the trend is of explosive growth without reform of its rules.

Brazil - Expenses of Public Sector
Source: Brazilian Treasury

Sep 11, 2016

Brazil - Gross Debt to GDP

Brazil - Gross Debt to GDP

Consolidated gross public debt reached 69.5% of GDP in July 2016. In early 2014, it was around 52%.

This rapid growth was caused by the rise in the fiscal deficit, due to rise in government spending above inflation, and also the high level of interest rates, which led to overspending with the payment of debt service.

There was also a reduction in tax revenues due to the economic recession. Regarding the recession, beyond the cyclical component that has been the decline in international commodity prices, there was also a decline in general levels of confidence caused by the political crisis.

The perspective to ratio gross debt / GDP ratio will continue to grow in the coming years. The adjustment that the government is proposing should not be enough to stabilize the debt growth over the next 3 or 4 years.

The graph shows the recent evolution of the gross debt to GDP in Brazil.

Source: Central Bank of Brazil