Troubled States only a small part of Brazil’s fiscal problems

There is little doubt that the finances of Brazil’s State governments are in dire straits, but there is some confusion as to how this relates to the wider fiscal position. The key point is that the State’s finances are already captured in the broader public sector deficit figures that the markets focus on. And it is mainly a rise in Federal borrowing that has driven the blowout in the overall public sector deficit since 2013.