“Government owes so much” that it stops investing to pay debt, says BC president

The president of the Central Bank, Roberto Campos Neto, says that the government is failing to make investments to finance public debt, which reached 74.1% of GDP (Gross Domestic Product) in July this year.

The statement was made during an event by the National Federation of Motor Vehicle Distribution (Fenabrave), in Mato Grosso, last Thursday (19).

“Brazil has low investment, and part of the time it is because the government owes so much that it takes the money that would have been intended to invest to finance the debt”, he stated in a statement from the Newspaper.

Campos Neto also said that the government may have problems with higher interest rates in the future if the rules of the new fiscal framework are not complied with and if “financial agents do not understand that there is a good plan to converge the debt to a more reasonable level ahead”.

He acknowledged the government’s difficulties in cutting spending due to the rigid Budget and Congress’s resistance to approving measures. The president of the Central Bank highlighted that the issue of spending control is a structural challenge for Brazil and is not limited to a specific government.

To balance finances, Campos Neto highlighted the importance of increasing revenue and making the new fiscal framework credible. He emphasized that if Brazil is unable to balance its fiscal accounts, this could negatively affect the rest of the economy.

“At the end of the day, if we can’t balance the tax, we can unbalance everything else”, he highlighted.

The financial market projects a negative primary deficit of 1.1% of GDP in 2023, compared to the government’s target of -0.5%. For 2024, when the government intends to eliminate the deficit, the projection is for a hole of 0.8%.

Campos Neto pointed out that Brazil faces a “twin unanchoring” with the inflation target at 3% and market expectations at 3.5%. Furthermore, he highlighted that, due to the challenging external scenario, Brazil needs an even greater fiscal effort, even with the existing framework.

In relation to public spending, the market predicts real annual growth of 27.5% for Brazil in 2023, compared to 1% on average for Latin America. For 2024, projections point to a 1% drop in Brazilian expenses, while the Latin American average is expected to fall 2.7%.