Interest rate cuts could generate savings of up to BRL 100 billion in government spending in 2024, economists estimate

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This allows for a smaller growth in the Brazilian public debt, with an impact on financial market and investor expectations about its sustainability. The Selic rate cut cycle started this week by the Central Bank will generate savings in public debt interest expenses and allow for a smaller growth in the Brazilian public debt. The reduction in expenses will happen because more than 40% of the Brazilian debt in public securities, which totaled R$ 6.19 trillion in June this year, is linked to the economy’s basic interest. As a result, when interest rates fall, at the same time the projected interest expense for the coming months also falls. In addition to the direct impact, new issuances of prefixed securities (the interest of which is defined at the time of the auction) will also become cheaper. According to Gabriel Leal de Barros, economist at Ryo Asset, the savings with debt interest payments will be R$ 80 billion in 2024. This value includes the reduction already made from 0.5 percentage points this week, to 13. 25% per year, in addition to the market projection that the rate will decrease to 11.75% per year at the end of 2023 (based on indications from the Central Bank itself). “The importance [do corte de juros para as contas públicas] is great due to the contagion of the Selic to the other debt indexes. About 47% of the debt is Selicada [indexada ao juro básico da economia]it is a substantial portion, the effect is quite relevant and immediate”, assessed economist Gabriel Leal de Barros, from Ryo Asset. For the chief economist of Banco Master, Paulo Gala, considering the cut of two percentage points in interest rates this year , projected by the market, the economy would be exactly R$ 80 billion in 2024. If the calculation includes a greater drop, to up to 9% per year in the Selic, projected to occur over the next year, the value of the economy rises to R $100 billion next year, the analyst estimated. “Government debt will grow at a lower rate [com a despesa mais baixa com juros]. This also helps a lot. the primary deficit [nas contas do governo] expected for next year is R$ 100 billion. It would practically give the expected deficit for next year”, declared Paulo Gala, from the Master bank. In June, the secretary of the National Treasury, Rogério Ceron, calculated that if the basic interest rate were at 10% a year, instead of the 13 75% a year that prevailed at that time, the savings in public debt interest expenses would allow the annual payment of almost one Bolsa Família. should be this value [para a taxa Selic, fixada pelo Banco Central para tentar conter as pressões inflacionárias] but if it were, instead of 13.75% [ao ano]was 10% [ao ano] the Selic currently, you would have almost one Bolsa Família per year saved in terms of interest that is being paid on the public debt”, he said, at that moment. Central Bank reduces interest for the first time in three years Interest expenses are in the financial budget , which is different from the budget of ministries (primary). Despite this, both expenditures, primary and financial, have an impact on the public debt. Public sector indebtedness is an indicator that is closely monitored by the financial market and by investors, as it brings indicative of the countries’ ability to pay. If the debt starts to get out of control, investors can charge higher interest rates when buying government bonds. With the drop in the Selic rate and the reduction in interest expenses, there is a better dynamic for the Brazilian indebtedness. .22 trillion, or 72.9% of GDP, was up 0.7 percentage points. In twelve months up to June this year, spending on public debt interest amounted to R$ 638 billion, according to the Central Bank, equivalent to 6.18% of GDP. See the estimate of other expenses, these primary ones (direct with the population), for this year: Estimate of Expenses in 2023 In addition to the cuts in interest rates expected for the coming months, the government also relies on the fiscal framework, the new rule for public accounts, to try to prevent an explosion of public debt in the coming years. The proposed fiscal framework has already passed through the Chamber of Deputies and the Federal Senate, but, to be valid, it still depends on a new vote by the deputies. The framework brings a limitation to expenses, which cannot be greater than 70% of the increase in revenues, and also cannot have a growth greater than 2.5% per year (in real terms). The National Treasury has informed that its estimates indicate that, after the approval of the fiscal framework by the National Congress, the debt will stabilize below 80% of GDP until 2026 and will continue its downward trajectory in the following years. Financial market analysts estimated last month, however, that the Brazilian public debt should reach 91.8% of the GDP in 2032. Above 90% of the GDP, the Brazilian debt could surpass the level of the European Union, of the emerging nations and be well above the estimate by the International Monetary Fund (IMF) for Latin America. Forecasts, however, only go up to 2027. IMF projection for the debt-GDP ratio g1 survey

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