Political Uncertainty Threatens Brazil's Fiscal Consolidation

  • Brazil's fiscal deficits is expected to narrow over the coming quarters although a volatile political environment will undermine its consolidation efforts. 
  • Brazil's deficit is forecasted at 8.7% of GDP in 2021 and 6.4% in 2022, although Fitch Solutions acknowledges uncertainty over these forecasts. It is expected that robust revenue growth and declining expenditures will help narrow the deficit over the coming quarters. 
  • In the year through July, revenues rose 41.2% y-o-y and expenditures contracted 15.8%. Economic activity has rebounded at among the swiftest paces in the region, bolstering revenues. The recovery is expected to continue through 2022, albeit at a slower pace (forecasting real GDP growth of 1.9% in 2022). 
  • Nonetheless, political weakness is contributing to uncertainty over spending plans and the government's ability to meet mandated spending obligations.

(Source: Fitch Solutions)