Todd Martinez, senior director and co-head of the Americas for sovereigns at Fitch Ratings: “Brazil’s shaky public finances are the clear weak spot in its otherwise pretty solid macroeconomic picture, representing the main constraint to our sovereign rating (BB/Stable) and a key source of risk. Taxes are high, but spending is even higher thanks to a big public sector and generous social programs, resulting in large fiscal deficits that are raising debt that is already at high levels (78 percent of GDP). A deep domestic capital market enables Brazil to manage this in a way that most other emerging markets cannot. But this also means that fiscal issues have bigger reverberations into financial conditions, inflation and growth. The Lula administration unveiled a new fiscal framework last year that sets a limit on spending, albeit a more generous one than before, and thus makes fiscal consolidation reliant on increasing revenues. But it is facing challenges on both fronts. The administration succeeded in…”