BRASILIA: Brazil's official interest rates and the average cost of servicing its public debt have never been lower, but investors are becoming worried that the government could face a funding crisis next year.
But with the fiscal outlook deteriorating and almost 1 trillion reais of public debt maturing next year, nerves are fraying. This prompted official approval last week for the central bank to transfer 325 billion reais to the Treasury to help ease the strain. As the Treasury chart below shows, the average maturity of the domestic debt stock ticked up slightly in July but was still a historically low 3.75 years, while the average maturity of new debt issued in July was barely 3 years.
These are developed economy levels of indebtedness. The Latin American & Caribbean median this year, according to Fitch Ratings, will be 4.3 per cent and 58.8 per cent of GDP, respectively. While the central bank has made clear it does not intend to raise rates for some time, that could change if the government fails to get public finances back on a more sustainable path.So far, at least, the mostly domestic investors who buy the debt seem willing to lend on these terms. On Aug. 13 the Treasury sold 30 billion reais of six-month fixed rate bills at an average rate of 2.08 per cent.