By Marcela Ayres
BRASILIA (Reuters) -The Brazil Treasury’s outlook for the country’s gross public debt has worsened, with a forecast rise by 10.6 percentage points during President Luiz Inacio Lula da Silva’s current term, 0.6 point higher than its previous estimate in December.
In its latest fiscal projections report released on Wednesday, the Treasury forecast the gross debt-to-GDP ratio – a key solvency indicator – to reach 82.3% by 2026, the final year of Lula’s leftist administration, up from 71.7% when he took office.
If confirmed, it would be the indicator’s second-worst deterioration under a presidential term, according to available data from the central bank, behind only 2015-2018, after Brazil faced a historic recession, fiscal crisis and presidential impeachment.
For this year, the debt ratio is expected to rise 2.5 points to 79.0% of GDP.
According to the Treasury, gross debt is projected to peak at 84.3% of GDP in 2028, a significant increase from the projected peak of 81.8% in 2027 seen just seven months ago.
The upward revision reflects the incorporation of higher assumptions for interest rates, exchange rate and inflation, the Treasury said.
Latin America’s largest economy already holds a high gross debt burden compared with its emerging market peers, with the debt burden growing as borrowing costs rise.
Nearly half of Brazil’s debt stock is directly linked to the benchmark interest rate, the Selic, whose increases immediately raise debt servicing costs.
Since September, the central bank has hiked rates by 450 basis points to a near two-decade high of 15% in a bid to rein in inflation, which has persistently run above the 3% target, with markets remaining skeptical about inflation convergence amid surging public spending under Lula.
(Reporting by Marcela Ayres; Editing by Kylie Madry and Leslie Adler)
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