Brazil’s public debt will reach 80% of GDP in 2024 and 90% in 2047, says OECD

The Organization for Economic Cooperation and Development (OECD) estimates that Brazil’s public debt should reach 80% of Gross Domestic Product (GDP) in 2024, and 90% in 2047, if public accounts are not in balance. The OECD, known as the “club of rich countries”, released this Monday (18) a report on the Brazilian economy.

In October, the General Government Gross Debt (DBGG), formed by the federal government, INSS and state and municipal governments, reached 74.7% of GDP, equivalent to R$7.9 trillion. “The debt trajectory is highly sensitive to the implementation of the reform agenda. Failure to implement tax reform would imply lower growth,” said the entity.

The opinion highlighted that the economy improved in 2021 and 2022, following public policies to contain the crisis caused by the Covid-19 pandemic. “The strong recovery in 2021 and 2022 caused the debt to fall to 73% of GDP at the end of 2022, but an expansionary budgetary policy, higher interest rates and lower growth put the debt on an upward trajectory again”, he says the report.

The OECD stated that the country’s GDP is expected to grow 3% in 2023 and 1.8% next year. “After a decline at the end of 2022, growth recovered due to the dynamism of the agricultural sector. GDP is expected to reach 3% in 2023 and 1.8% in 2024, driven by strong domestic demand. The increase in domestic consumption continues to be the main driver of growth in 2023, despite restrictive monetary conditions”, pointed out the opinion.

The entity made a series of recommendations to Brazil aimed at strengthening the economy, including: maintaining the gradual easing of monetary policy, as long as the ongoing convergence of inflation with the target is maintained; implement the new fiscal target and reduce the deficit to ensure public debt sustainability; develop medium-term budget plans, with a rolling horizon of four years, and attach them to the annual budget law.

The report also suggests consolidating all federal and state consumption taxes into a single unified value-added tax; negotiate new reductions in tariffs and non-tariff barriers with Mercosur partners; subsidize high-quality training programs that respond to market needs, among others.

On Friday (15), the Chamber of Deputies approved the tax reform. Supported by the government, the PEC’s main premise is the creation of a “dual” Value Added Tax (VAT) system, formed by the Contribution on Goods and Services (CBS), under the jurisdiction of the Union, and the Tax on Goods and Services (IBS), whose responsibility will be shared between states and municipalities. The current ICMS, ISS, PIS and Cofins will be abolished.