Brazil raises prospect of 16% public debt rise

Brazil’s public debt could grow by as much as 16 per cent this year, according to the government’s 2010 Annual Borrowing Plan, which analysts described as consistent with the administration’s emphasis on slow but steady progress.

“It is a conservative plan but it follows the same line as in previous years, most importantly by reducing the percentage of debt linked to interest rates that this year are expected to rise,” said Silvio Campos Neto, chief economist with Banco Schahin.

That percentage of floating-rate debt should total between 30 per cent and 34 per cent, compared with 33.4 per cent at the end of 2009, Arno Augustin, Treasury secretary, told a news conference in Brasilia.

The Selic base interest rate is currently 8.75 per cent but most analysts expect it to head back into double figures this year.

Mr Augustin also said the percentage of fixed-rate domestic debt should end 2010 at between 31 per cent and 37 per cent.

Outstanding debt should rise by R1,600bn-R1,730bn , up from R1,497bn ($818bn) – almost 16 per cent – at the end of 2009.

The government will require R372.3bn to service domestic and foreign debt this year, with R285.6bn going on main payments while another R86.7bn is to be set aside for interest. The total figure is slightly down on the R379.7bn it announced last year for 2009.

Other analysts agreed the overall plan was solid but some said officials could take more advantage of growing capital inflows.

“It seems that 2010 is going to be a positive year for them in the sense that it is on everyone’s radar screens, everyone is moving money into Brazil,” said Mauro Leos, vice-president on the sovereign ratings team at Moody’s.

“A large part of those capital inflows have been going into equity rather than debt and in that sense they are conservative. They may have the opportunity to perform better than expected.”

Although overall foreign direct investment was down because of the global crisis, the Bovespa gained 82.66 per cent in 2010 and the real was up by more than a quarter against the dollar. Foreign reserves currently sit at $241.4bn, a record high.