Brazil’s Country Risk Soars: Highest Annual Increase Since 2015

Brazil’s country risk, measured by the 5-year Credit Default Swap (CDS), hit 205.0 points on Monday, December 30, 2024. This marks the highest annual increase since 2015, rising 72.53 points from 132.49 points in 2023.

The CDS, a key indicator of economic stability, surged 43.5 points in December alone. This spike coincided with heated debates between the government and Congress over fiscal measures.

Financial agents deemed these measures insufficient to curb public spending growth. Congress further weakened the proposal, particularly regarding changes to the Continuous Cash Benefit program.

These developments triggered negative reactions in financial markets. The commercial dollar exceeded R$6.00 for the first time, closing the year at R$6.18, a 27.3% drop.

The Ibovespa, Brazil’s main stock index, ended the year at 120,283 points. This represents a 10.36% annual decline and a 4.28% drop in December. These figures reflect growing investor concerns about Brazil’s economic trajectory.

During President Lula’s administration, the country risk initially decreased by 45.2 points. It reached its lowest point of 122 in February 2024. However, Finance Minister Fernando Haddad’s decision to relax fiscal targets in April raised the risk to 160 points.

The last quarter saw a further increase in CDS due to delayed government measures to contain public spending. The underwhelming nature of these measures contributed to a higher risk perception among investors.

This surge in Brazil’s risk index echoes the economic turmoil of 2015 when the country faced a recession under Dilma Rousseff’s government. That year saw a staggering 287.9 point increase in the country risk.

These developments underscore the challenges Brazil faces in maintaining economic stability and investor confidence. The government’s fiscal policies and their implementation will likely remain under scrutiny in the coming months.