Fitch: Latin fiscal scene exceeds expectations, but spending ceiling in Brazil is a risk

The rating agency Fitch Ratings said on Tuesday (15) that the fiscal recovery in Latin American countries has exceeded expectations, although risks – such as the change in the spending ceiling in Brazil – continue to make the prospects challenging.

By 2021, deficits in many countries narrowed to near pre-pandemic levels, while some, like Brazil, fared even better, Fitch said in a report.

The Brazilian consolidated public sector recorded a primary surplus of 64.727 billion reais in 2021, equivalent to 0.75% of the Gross Domestic Product (GDP), the first positive annual result in eight years, according to data from the Central Bank.

“Surprisingly strong collections were the main driver behind the better-than-expected fiscal results (in Latin America), as they were not only driven by solid real GDP recoveries and high inflation, but grew well above these variables by almost everywhere,” said the agency, also drawing attention to high commodity prices.

Speaking specifically of Brazil, Fitch stated that the country was an exception among its peers when it comes to spending.

While most Latin American nations are spending well above pre-pandemic levels, the withdrawal of emergency benefits and recurrent cost containment in Brazil has brought domestic primary spending back to pre-crisis levels in real terms, the report highlighted. .

“Strong fiscal results (in Latin America) in 2021 should be biased positively on Fitch’s fiscal projections for 2022-2033, but the outlook remains challenging,” the agency said.

“Pandemic spending is being extended amid strong social pressure for support of a longer-lasting nature, particularly in a busy election year, and recent superior fiscal performance may reduce the urgency for further efforts. Brazil’s decision to change its spending ceiling to accommodate more spending is an example.”

In December of last year, the National Congress enacted the PEC dos Precatórios, which established, among other measures, a change in the rule for correcting the spending ceiling – an important fiscal anchor in the country –, opening space for the payment of Auxílio Brasil, a new social program government in lieu of Bolsa Família.

Source: CNN Brasil

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