Gustavo Franco Urges Brazil to Rebuild Fiscal Credibility as Debt Reaches 82% of GDP
Updated
Updated · Valor International · Aug 14
Gustavo Franco Urges Brazil to Rebuild Fiscal Credibility as Debt Reaches 82% of GDP
1 articles · Updated · Valor International · Aug 14
Summary
Brazil needs years of fiscal adjustment to regain credibility and investment-grade status, Gustavo Franco said, arguing the country should eventually post primary surpluses of 2% to 3% of GDP.
Debt at about 82% of GDP and growing unpaid government obligations are already eroding confidence, he warned, with delayed court-ordered payments and missed obligations spreading across federal, state and local authorities.
Franco blamed the dismantling of Brazil’s constitutional spending cap and said the fiscal framework that replaced it is too weak to restore order to public finances.
Higher interest rates already reflect Brazil’s difficulty carrying a large debt load, he said, and further deterioration could deepen a broader decline in public credit.
The next presidential term may need to hold the minimum wage to inflation to stabilize debt, Franco said, though he questioned whether any president would sustain such politically costly restraint.