Brazil rebuffs fears over EM market threat to 'very high' deficit

Brazil's finance minister Henrique Meirelles tells GlobalMarkets that the strength of its economic fundamentals will be enough to withstand any impact from turbulence in financial markets as rates rise despite World Bank worried over the size of its deficit

  • By Thierry Ogier
  • 13 Oct 2017
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Meirelles
Meirelles: fundamentals have improved
Brazil is strong enough to weather any change in market appetite for emerging market risk, Brazilian finance minister Henrique Meirelles said in a defiant response to warnings from the World Bank and investors over its fiscal deficits.
“We have reached a point where Brazil does not depend on the positive mood of the markets anymore,” Meirelles told GlobalMarkets in an exclusive interview shortly after a meeting with the US Treasury. “Evidently, the amount of investment in emerging markets is something that has an influence on interest rates. But our fundamentals have steadily improved — and the more fundamentals improve, the less influential the emerging markets environment become,” he said. 
While many observers say Brazil’s sizeable fiscal deficit represents the Latin American sovereign’s Achilles’ heel, Meirelles was adamant that the public spending cap, which was approved last year, would help to rein in public expenditures, even though the approval of the unpopular social security reform has been delayed.
“Even if the reform is not approved, the ceiling [spending cap] is now part of the constitution. Other measures would have to be taken, such as a freeze on other expenditures, like civil servants wages,” Meirelles said.
He added that the debt-to-GDP ratio — currently at 73% of GDP — might start declining after two years. “The ratio between public expenditure and GDP is due to fall from 20% at present to 15% in 10 years,” he said. 

High debt service 

But Carlos Vegh, the World Bank chief economist for Latin America, said that while the cap on real spending would help, the fiscal side was a “concern”. “The overall fiscal deficit is very high, the total debt service is very high,” he told GlobalMarkets. “That is no good, because it is taking a lot of resources that could be used for other purposes. It is going to improve, but not by leaps and bounds.”
While Meirelles’ reforms are popular among investors, they are less so among Brazilian voters, who will go to the polls in a year’s time to choose their new president. But Meirelles said he was confident the return to economic growth after two years of recession would be enough to prove that the reform agenda had been successful and that it should be pursued. 
Last week, the Brazilian Treasury issued a $3bn 10 year bond at 4.68% (yield) with a spread of 235bp over US Treasuries, the lowest spread since September 2014, when the country was on the verge of recession. Public debt refinancing costs have been falling for 12 consecutive months to reach 10.62% per year, according to Leandro Secunho, the Treasury’s debt manager.


  • By Thierry Ogier
  • 13 Oct 2017

All International Bonds

Rank Lead Manager Amount $m No of issues Share %
  • Last updated
  • Today
1 Citi 417,761.51 1606 9.02%
2 JPMorgan 380,362.89 1737 8.21%
3 Bank of America Merrill Lynch 364,928.71 1322 7.88%
4 Goldman Sachs 269,252.76 932 5.82%
5 Barclays 267,252.43 1082 5.77%

Bookrunners of All Syndicated Loans EMEA

Rank Lead Manager Amount $m No of issues Share %
  • Last updated
  • Today
1 HSBC 45,449.36 196 6.56%
2 BNP Paribas 38,734.80 217 5.59%
3 Deutsche Bank 37,615.10 139 5.43%
4 JPMorgan 34,724.19 118 5.01%
5 Bank of America Merrill Lynch 33,835.53 112 4.88%

Bookrunners of all EMEA ECM Issuance

Rank Lead Manager Amount $m No of issues Share %
  • Last updated
  • Today
1 JPMorgan 22,475.46 105 8.65%
2 Morgan Stanley 19,057.00 101 7.34%
3 Citi 17,812.08 111 6.86%
4 UBS 17,693.89 71 6.81%
5 Goldman Sachs 17,333.10 99 6.67%