Choppy global market conditions have forced Brazilian policymakers to rethink their plans to issue the country’s first sovereign sustainable bond.
“Since we have been thinking about a sustainable bond, there has been a very large increase in US long-term interest rates,” Brazilian Finance Minister Fernando Haddad told LatinFinance on Friday on the sidelines of the annual World Bank/IMF meetings in Marrakech, Morocco. “We are waiting a bit for a better opportunity.”
Yields on US long-term treasuries have jumped in recent weeks after the Federal Reserve indicated interest rates would stay higher for longer than previously expected to tame inflation.
Brazil has been preparing the ground for months for its debut in the global sustainable debt market in order to support its $2 billion Fundo Verde program of investments to reduce greenhouse gas emissions and promote sustainable practices. The government recently unveiled a framework for sustainable bonds and carried out a non-deal roadshow in New York last month. But Haddad said he is now looking for an alternative, highlighting a new domestic “instrument” to be launched by the end of the year.
“Beyond green bonds, we intend to launch a financial tool by the end of the year to support investments that can take advantage of the competitive advantages in Brazil in clean energy generation and critical minerals,” he said in an interview.
“We have been designing this instrument. Its architecture is already ready. We intend to announce it once we close negotiations internally, with the central bank and with the economic team. We may be talking about several hundred million [reais] to promote leverage,” Haddad said.
Market observers in Marrakech were generally supportive of Brazil’s efforts to restore confidence in the country’s economic prospects.
“Brazil is one of the very few countries where we actually have recently revised potential growth” said Murat Ulgen, head of emerging market research at HSBC. “They are very competitive in agriculture sector and biofuels. They have taken growth higher and they have a sizable premium.”
The IMF this week increased its GDP growth forecast for Latin America’s biggest economy to 3.1% this year from a 2.1% projection in April. The fund also raised its forecast for growth next year to 1.5% from 1.2% previously.
Joydeep Mukherji, S&P Global’s Americas sovereign ratings lead, added: “The economy is doing slightly better than people had forecast. They have a fiscal plan with some changes in the fiscal framework. Implementation is the key if they can reduce the burden of debt,” he said.
Haddad’s fiscal plan includes an ambitious target to eliminate the primary budget deficit by next year.
“If they get good growth they can meet their fiscal target,” said Mukherji.