Brazil’s gross debt grows again, points out IMF – 04/12/2023 – Market

After two years of decline, the Brazilian gross debt should rise again in 2023 and will continue to grow for the next five years, following a global trend, projects the IMF (International Monetary Fund).

According to the institution, the country’s gross debt was on a year-on-year growth trajectory until reaching a peak of 96.8% of GDP (Gross Domestic Product) in 2020, with the onset of the Covid-19 pandemic, almost nine points more than the previous year. In the following two years, the proportion dropped to 85.9% of GDP last year.

This year, however, the IMF predicts that the ratio between debt and GDP will increase to 88.4%, and will continue to grow until it reaches 96.2% in 2028. The data are part of the Fiscal Monitor, an IMF report released this Wednesday (12).

The projection considers the current scenario, without the fiscal framework proposed by the Minister of Finance, Fernando Haddad, who proposes that government expenses grow at a pace of up to 70% of revenue. The rules package, however, has not yet been sent to Congress.

The growth of the country’s gross debt follows a global trend, and Brazil is below the world average, which should be a gross debt of 93.3% in relation to GDP this year, also an increase after two years of decline, according to the agency. .

Until last year, the world saw the steepest drop in global debt in 70 years, after tightening fiscal and monetary conditions in about three-quarters of nations tracked by the IMF. However, debt is still around eight points above pre-pandemic projections, the report says.

Public finances around the world have improved in the last two years due to the increase in GDP after the abrupt drop in 2020 with the pandemic, not only due to the strength of the economic recovery, but also due to the unexpected increase in inflation, which led to growth in revenue.

Brazil has one of the highest gross debts among emerging economies, behind only Ukraine (98.3%), a country at war, and Egypt (92.9%), among the countries for which the IMF aggregates data.

On average, advanced and emerging economies, excluding China, saw debt reduction of two to three points of GDP last year, largely due to inflation.

Gross debt is the total debt of the federal government, states and municipalities with the private sector and public financial bodies.

The IMF’s calculation is different from that made by the Brazilian government, which disregards the Treasury bonds held at the Central Bank and in March projected the public debt at 77.6% of GDP for 2023. In the monetary fund account, these papers are included in the calculation .

The country should also have a primary deficit again this year, of 2% in relation to GDP, after two years of surplus. The deficit, smaller than the average of emerging countries, should reduce until 2025, when the country returns to having primary surplus, projects the IMF.

The IMF assesses that countries must adopt a “strict fiscal stance” to fight inflation, especially in places where it proves to be persistent. This will allow central banks to raise interest rates less than they normally would, “which would help to contain borrowing costs for governments and keep financial vulnerabilities in check”, write the economists at the entity.

Limiting increased spending, however, needs to also consider improving safety nets for the most vulnerable, including tackling food security, because “governments are likely to face societal pressures to offset past increases in the cost of living,” he says. the IMF.

If there is a substantial weakening of economic activity and an increase in unemployment, it is necessary to allow for an increase in the deficit, especially if inflationary pressure is under control and there is fiscal space available, placing in the balance the fall in revenue or the increase in spending on unemployment benefits.

Low-income countries face particularly severe challenges, says the IMF. “Despite several waves of tax reforms, revenues remain persistently insufficient, below the levels that allow the State to play its role in sustainable and inclusive development”, write the economists of the agency, also calling for international cooperation to help these countries.

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Glossary of tax terms

DEFICIT

In accounting, it’s when expenses exceed revenues, the opposite of balance. In the case of the public deficit, when government spending is greater than revenue.

GROSS DEBT

Covers the total debts of the federal government and regional entities (state and municipal governments) to financial and non-financial, public and private companies, including abroad.

NET DEBT

It is the gross debt minus credits receivable from all entities (federal, state, municipal, BC and state governments) and reserves (a kind of savings, in dollars) of the country.

PRIMARY OUTCOME

Indicator of the State’s financial health, consisting of the difference between revenues from the collection of taxes and fees, for example, and expenses to maintain the public machine and the provision of services to society, not including financial expenses with the payment of interest on the public debt. When revenue exceeds expenditure, the result is called a primary surplus, when expenditure is greater than revenue, there is a primary deficit.