Even with an increase in interest expense, public debt retreats and closes 2022 at the lowest level in five years

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Interest expenses amounted to R$ 586 billion, the highest amount in five years, reflecting the increase in the Selic rate to contain inflation. Gross debt stood at 73.5% of GDP, the lowest level since July 2017. The gross public sector debt recorded a further drop in 2022 and ended last year at R$7.22 trillion, equivalent to 73.5% of Gross Domestic Product (GDP). The numbers were released this Monday (30) by the Central Bank. This indicator is monitored by risk rating agencies and investors, as it indicates the nation’s ability to pay. A very high public debt tends to generate difficulties in attracting investments and carrying out social expenses. At 73.5% of GDP, the gross debt of the consolidated public sector (government, states, municipalities and state-owned companies) reached the lowest level since July 2017 – when it reached 73.2% of GDP. The BC’s historical series for the indicator begins in December 2006. The fall in the public sector’s gross debt happened despite the increase in interest expenses, which totaled R$ 586.4 billion in 2022. This is the highest level of the series history of the BC, which began in 2002. The values ​​were not corrected by the IPCA. However, in relation to GDP, considered more suitable for historical comparisons when values ​​are not updated by inflation, interest expenditure in 2022 (5.96% of GDP) was the highest since 2017 — when it amounted to 6.09% of GDP. According to the BC, the increase in debt in 2022 stems from: The increase in the Selic rate by the Central Bank. At 13.75% per year, basic interest is at the highest level in six years; The increase in inflation, as around a third of the debt is pegged to price indices. On the other hand, what contributed to a drop in debt/GDP last year, with a greater impact than the negative factors, were: Nominal GDP growth; Net debt redemptions (R$218.2 billion in bonds); Reduction of 6.5% in the dollar price, which resulted in BC gains of R$ 92.3 billion with contracts in the futures market (currency swaps). Investor concerns Since the transition, with the increase in expenses through the PEC to recompose the budget, the elected government of President Luiz Inácio Lula da Silva has been demanded by the financial market about measures to avoid the increase of the public debt. The prediction of analysts consulted by the Economic Policy Secretariat of the Ministry of Finance in January this year is that the Brazilian debt will rise to 78% of GDP by the end of 2023. The budget approved by the National Congress for 2023, however, estimates a negative result of R$ 231.5 billion, above 2% of GDP. Which would raise the public debt. Earlier this month, the economic team announced a plan to reduce the deficit to below R$100 billion this year, that is, below 1% of GDP. In Davos, the Minister of Finance, Fernando Haddad, stated that he is seeking a fiscal surplus within two years. The President of the Republic, Luiz Inácio Lula da Silva, in turn, has openly criticized the current level of interest rates, which generate high expenses, and has defended the drop in the inflation target — as a strategy for reducing the Selic rate. VIDEOS: economic news

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