Simultaneously grappling with surging deaths from Covid-19, recession and a weak currency, Brazil at least won’t have problem finding dollars to pay for imports and service its foreign debt in the aftermath of the pandemic.
As Brazilians stop traveling and spending money abroad, the country’s long-running current account deficit is narrowing fast and could even become a surplus this year. In April alone, it was a positive $3.8 billion, the highest ever according to data compiled by Bloomberg.
The data sets Latin America’s largest economy apart from many of its neighbors which are either restructuring foreign debt or relying on the International Monetary Fund for protection. So far this year, the Fund has renewed or extended flexible credit lines — which work as a precautionary measure in moments of stress — to Mexico, Chile, Colombia and Peru.
“Next year, many emerging countries could face crises of payments,” said Armando Castelar, an economist at Fundacao Getulio Vargas in Rio de Janeiro who headed the economics department at Brazil’s BNDES development bank. “If the current account deficit continues to decrease, or even zeroes, Brazil will at least be saved from that.”
That may not seem like much of a bright spot when the economy is expected to contract well over 6% this year, and much of the improvement in the current account comes from sharp drops in imports and international travel.
Last month, as Brazil became a hotspot for the coronavirus, President Donald Trump restricted entry of most non U.S. citizens coming from the Latin American country. But the pandemic and a sinking currency had already grounded many Brazilians: Net travel expenses stood at $1.6 billion in April, less than half of what it was in the same period in 2019.
Central bank President Roberto Campos Neto last week attributed a recent rebound in the real, which still remains the world’s worst-performing major currency, partly to the current account improvement. Before the coronavirus hit, the bank expected a $41 billion deficit this year, but will review that forecast on June 25, in their quarterly inflation report.