July 31, 2020 / 1:19 PM / 3 days ago

UPDATE 2-Record Brazil deficit, debt figures highlight huge public finances challenge

(Adds analyst comment)

By Jamie McGeever

BRASILIA, July 31 (Reuters) - Brazil’s national debt rose to a record 85.5% of gross domestic product and the public sector registered a record $36.5 billion primary deficit in June, the central bank said on Friday, as the COVID-19 crisis hammered the government’s finances.

The figures were greater than economists had expected, and come after senior Economy Ministry and Treasury officials this week reiterated their commitment to the government’s spending cap rule, widely seen as public finances’ main pillar.

“We expect the fiscal and public debt picture to deteriorate significantly throughout 2020,” said Alberto Ramos, head of Latin American research at Goldman Sachs, projecting a public sector primary deficit of at least 13% of GDP.

“Addressing the unsustainable public debt dynamics and building fiscal buffers remains, unquestionably, the key macro challenge facing both the executive and legislative branches once the pandemic is brought under control,” he said.

The public sector deficit excluding interest payments was 188.7 billion reais ($36.5 billion) in June, the central bank said, more than the expected 163.5 billion reais shortfall to bring the deficit in the first half of the year to 402.7 billion reais.

The deficit in the same period last year was just 5.7 billion reais, the central bank said.

The accumulated primary deficit in the 12 months through June was equal to 6.38% of gross domestic product. The Economy Ministry on Thursday said it expects a public sector primary deficit of 812.2 billion reais, equal to 11.3% of GDP.

Brazil’s gross debt of 85.5% of GDP in June was higher than the 83.8% forecast in a Reuters poll of economists, rising toward the government’s year-end forecast of 94.7% of GDP.

Net debt rose to 58.1% of GDP in June, also higher than expected.

The nominal public sector deficit including interest payments surged to 210.2 billion reais in June, the central bank said. In the 12 months to June, the shortfall totaled 818.6 billion reais, equivalent to 11.4% of GDP. ($1 = 5.18 reais) (Reporting by Marcela Ayres and Jamie McGeever Editing by John Stonestreet and Jonathan Oatis)

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