Brazil Government Indebtedness Rising ‘Sharply,’ Fitch Says

Brazil’s government debt is rising “sharply” and is on the high side of the median for BBB-rated sovereign securities, said Shelly Shetty, Fitch Ratings senior director and head of Latin America sovereign debt.

“Brazil’s Achilles’ heel is public finances,” Shetty said in an interview in Sao Paulo following a speech on the country’s sovereign rating. “The government overtaxes and overspends. The stock of debt is higher than peers and interest rates are higher which means that the interest burden to revenue is 15 percent, compared to the median 7 percent” for BBB sovereign peers.

Risks related to Brazil’s growing public debt are offset by greater confidence that the country’s growth and investment prospects are improving, Shetty said to reporters in Sao Paulo.

The country will grow about 4.2 percent in 2013, compared to 1.5 percent this year, she said. Growth recovery along with high inflationary expectations and a “tight” labor market will push the central bank to increase benchmark borrowing costs from a record-low 7.25 percent in the second half of 2013, though the rate will stay in single digits, she said.

She said Brazil’s credit rating, along with most Latin American peers, is stable and “very well anchored.”

To contact the reporter on this story: Blake Schmidt in Sao Paulo at bschmidt16@bloomberg.net

To contact the editor responsible for this story: David Papadopoulos at papadopoulos@bloomberg.net