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Brazil ups debt ceiling to accommodate crisis spending, increases short-term borrowing

BRASILIA (Reuters) - Brazil’s Treasury on Friday raised the public debt ceiling for this year to account for a surge in emergency spending to combat the COVID-19 crisis, outgoings that will increasingly be covered by short-term borrowing.

The total stock of federal debt is now expected to end the year between 4.6 trillion and 4.9 trillion reais, the Treasury said in a statement, up from the previous parameters of between 4.5 and 4.75 trillion reais.

In a statement, the Treasury said the rise was a result of the higher issuance following the “inevitable” surge in government financing needs due to the COVID-19 pandemic.

The average maturity of the overall public debt was also revised down between 3.5 and 3.8 years from 3.9 to 4.1 years.

“Yes, the new average maturity is short, but this is not a big problem because we can lengthen it again in the future,” Jose Franco, sub-secretary for public debt at the Treasury, told reporters in an online news conference on Friday.

“The biggest problem is the share maturing in 12 months.”

The Treasury said the share of debt maturing in the next 12 months will rise to between 24% and 28% of the total from 20% to 23%.

Much of that will be in fixed-rate debt, the share of which will rise to between 30% and 34% of the total from 27% to 31%, Treasury said.

Franco said the market is liquid enough but investors are demanding liquidity and cash-like assets, and are steering clear of five-year bonds, never mind 10-year debt.

Figures on Friday showed Brazil’s federal public debt stock fell 1% in July to 4.34 trillion reais ($80 billion) from June, while the domestic debt stock fell 0.8% to 4.12 trillion reais.

On Thursday, official approval was granted for the central bank to transfer 325 billion reais to the Treasury to help pay down the record debt load and ease the increasing funding strain.

($1 = 5.41 reais)

Reporting by Jamie McGeever and Marcela Ayres; Editing by Chris Reese, Tom Brown and Jonathan Oatis

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