By Marcela Ayres
BRASILIA, July 31 (Reuters) - Brazil's overall budget deficit widened to nearly 10% of gross domestic product (GDP) in the 12 months through June, central bank data showed on Friday, reaching its highest level since 2021 as elevated interest costs weighed on public finances.
The shortfall rose to 1.3 trillion reais ($257.03 billion), equivalent to 9.99% of GDP, from 9.61% in May and 7.27% a year earlier.
The reading was the highest since April 2021, when the deficit reached 10.25% of
GDP as Latin America's largest economy grappled with extraordinary spending linked to the COVID-19 pandemic.
Many economists see Brazil's fast-growing interest bill amid high interest rates and elevated risk premiums as its biggest fiscal vulnerability, and investors remain skeptical about the government's ability to stabilize debt as public spending continues to rise.
The figure also underscored Brazil's weaker fiscal position relative to its peers, as it came in well above the roughly 6% average deficit projected by the International Monetary Fund for emerging market and middle-income economies this year.
DEBT CLIMBED UNDER LULA
In the 12 months through June, interest payments reached 8.80% of GDP, accounting for the bulk of Brazil's nominal deficit, while the primary deficit stood at 1.19% of GDP.
Gross public debt rose 0.9 percentage points from May to 81.9% of GDP, above the 81.5% forecast by economists polled by Reuters, driven mainly by accrued interest expenses and net debt issuance.
Since President Luiz Inacio Lula da Silva took office in January 2023, Brazil's gross debt -- regarded as the country's main solvency metric -- has increased 10.2 percentage points of GDP.
In June alone, Brazil's nominal interest bill totaled 110.7 billion reais. The public sector posted a primary deficit of 55.3 billion reais, while economists in a Reuters poll had expected a 49.8 billion-real shortfall.
As a result, the overall deficit reached 166 billion reais in the month. The market forecast was for a shortfall of 133.2 billion reais.
($1 = 5.0578 reais)
(Reporting by Marcela Ayres; Editing by Gabriel Araujo)
