Selic: each point weighs BRL 38 billion in Brazil’s gross debt – 06/21/2023 – Market

The combination of appreciation of the real, falling inflation, stronger economic growth and positive results in public accounts has helped to offset part of the negative effects of rising interest rates on Brazil’s indebtedness indicators.

The Central Bank itself calculates the impact of some of these factors on the general government’s gross debt (which includes data from states and municipalities). This is currently the indicator most used by economists to measure the country’s indebtedness and compare it to other economies.

According to the BC’s most recent calculation, an increase of one percentage point in the Selic rate, maintained for a period of 12 months, has an impact of R$ 38 billion on gross debt, which corresponds to about 0.4 percentage points of GDP (Gross Domestic Product).

An increase of the same magnitude as the IPCA, the IBGE consumer price index that serves as an inflation target, has a cost of R$ 18.4 billion (0.18 percentage points of GDP).

A 1% devaluation of the exchange rate (high dollar) raises the debt by R$ 9.2 billion (0.09 points of GDP). In the case of foreign exchange, the impact is immediate, as it affects the accounting of liabilities in foreign currency when converted into local currency.

When the Selic rate, inflation and the dollar fall, the effects on the debt are positive, in the same magnitude, according to BC calculations. In this case, the impacts released at the end of May were considered, based on April numbers.

Another indicator to measure indebtedness is the net public sector debt, in which the value of assets is deducted from liabilities. In this case, the impacts for Selic and IPCA are very close to those calculated in relation to gross debt.

Regarding the exchange rate, there is an important difference, as Brazil is a creditor of foreign currency, that is, it has exchange reserves that exceed the external debt. For this reason, a 1% increase in the dollar reduces net debt by R$7.7 billion, since it increases the value of this asset in reais.

The most recent data from the Central Bank shows that the net debt reached 57.2% of GDP, equivalent to R$ 5.8 trillion, in April, a practically stable level throughout the four-month period.

There were negative effects in the period due to interest and exchange rate appreciation. Nominal GDP growth and the primary surplus, on the other hand, offset these effects.

Gross debt reached 73.2% of GDP (R$ 7.5 trillion), after closing 2022 at 72.9%, with the impact of interest overcoming the positive effects of the exchange rate, GDP and also debt redemptions .

In 2022, gross debt declined by 1.3 percentage points of GDP, with redemptions and GDP growth outweighing the negative impact of interest rates.