Brazil: Risks on The Rise

BRAZIL ECONOMICS - Report 28 May 2024 by Alexandre Schwartsman, Cristina Pinotti and Diego Brandao

During the last couple of months the perception of Brazil's fiscal and monetary risks deteriorated significantly, a trend that has worsened further recently. Last week the government's overly optimistic projection for the primary balance in 2024 once again postponed the inevitable discussion of the likely downward revision of the fiscal target.

In addition, Haddad's statement that the inflation target is "extremely demanding” and “unimaginable" once again reveals the leniency towards inflation on the part of the government that will appoint the next head of the Central Bank. The increase in risk premia is justified by the fact that it better reflects the fragile foundations of fiscal policy, marked by a framework that does not stabilize gross debt, as well as noises coming from monetary policy, signaling a lower future commitment to the inflation target. Increasing meddling by the Executive in Petrobras completes the picture of bad memories of past mistakes.

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