Brazilian Debt Falls to Lowest Level in Over a Decade

Source: Bloomberg

Brazil’s net debt fell in September to its lowest level since 1997, as a 15 percent decline in the real last month boosted the value of the country’s near-record $353 billion in foreign currency reserves.

Net debt fell to 37.2 percent of gross domestic product last month, the central bank said today in a report, compared with 39.2 percent of GDP in August. Five analysts had been expecting net debt to fall to 39 percent of GDP, according to the median estimate in a Bloomberg survey.

Brazil’s primary surplus, which includes federal and local governments as well as state companies, rose to 8.1 billion reais ($4.8 billion) from 4.6 billion reais in August. The figure matched the median estimate of eight economists surveyed by Bloomberg.

In the minutes to its October policy meeting published last week, the central bank said that a process of “fiscal consolidation” is underway, which will help slow inflation and pave the way for lower interest rates. Consumer prices rose 7.12 percent in mid-October from a year earlier, exceeding the upper limit of the inflation target for a sixth straight month.

The central bank’s forecast that inflation will slow to 4.5 percent by the end of 2012 assumes that the government hits its 2011 and 2012 budget targets, the minutes said.

The yield on the interest rate futures contract maturing in January 2012, the most traded in Sao Paulo today, fell three basis points, or 0.03 percentage point, to 11.1 percent at 8:53 a.m. New York time. The real fell 1 percent to 1.6882 per U.S. dollar.

2012 Budget Target

President Dilma Rousseff’s 2012 budget proposal, presented to congress in July, targets a primary budget surplus of 139.8 billion reais for the federal, state and local governments, the equivalent of 3.1 percent of GDP. This year the government has already saved 105 billion reais of its 128 billion reais primary target.

Brazil’s budget has been boosted by a surge in tax receipts from full employment conditions, and higher taxes on financial transactions. Federal revenue rose 15.4 percent in September from a year earlier, to 75.1 billion reais. Revenue raised by the so-called IOF tax on financial transactions rose 25 percent from a year earlier.

The overall deficit in September was 9.2 billion reais, or half the previous month’s 17.2 billion reais.

The central bank cut its benchmark Selic rate to 11.5 percent from 12 percent this month, saying this would protect Brazil from a slowdown in the world economy. Brazil targets inflation of 4.5 percent, plus or minus two percentage points.