Senate body sees public debt rise and exceed 80% of GDP in 2024; Treasury wants stable debt in the Lula government

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Consolidated public sector gross debt ended 2022 at 73.5% of GDP. The Independent Fiscal Institution does not, however, have a projection for the debt at the end of the Lula government. The Independent Fiscal Institution (IFI), a body linked to the Federal Senate, estimated that the gross debt of the public sector, which ended 2022 at 73.5% of the Gross Domestic Product (GDP), should advance and end 2024 above 80% of GDP . The information is contained in the Fiscal Monitoring Report for February released this Wednesday (15). The IFI estimate is that the debt will rise to 78.7% and 82.3% of GDP in 2023 and 2024, respectively. The body does not, however, bring a projection for the public debt in 2026, at the end of the Lula government. The Fiscal Monitoring Report is signed, among others, by economist Daniel Couri, currently executive director of IFI. He informed that he will assume, as of this Thursday (16th), the position of deputy secretary of the Federal Budget Secretary, in the folder commanded by Minister Simone Tebet, of Planning. IFI forecasts show that the task of the National Treasury Secretariat, subordinated to the Ministry of Finance, will be difficult to keep the gross debt stable at around 74% in the Lula government. Since the transition, with the increase in expenses through the PEC to recompose the budget, the Lula government has been asked by the financial market about measures to avoid the increase of the public debt. Public accounts According to the IFI report, the projected increase in gross debt is related to the expected deterioration in the primary result of the consolidated public sector, which is expected to move from a surplus in 2022 to a deficit of 1.3% of GDP in this year. year and another of 1.1% of GDP in 2024. In January, the Minister of Finance, Fernando Haddad, launched a fiscal package, focused mainly on the recovery of revenues, to try to improve public accounts and record a deficit below R$ 100 billion, or 1% of GDP, this year. According to the Independent Fiscal Institution, the primary surplus (not counting interest expenses) required to stabilize the debt at 73.5% of GDP is 3.8% in 2023. “For the medium term (period 2023 to 2031) , the IFI scenario forecasts average real economic growth of 1.9% and implicit real interest on the debt of 3.9% pa, which would result in a primary requirement of 1.5% to stabilize the gross debt as a proportion of GDP “, he added. Spending cuts The report also features an analysis by Daniel Couri and Vilma Teixeira, director of IFI, on public accounts. They estimate that fiscal policy (government revenues and expenditures) remains in a “waiting rhythm”. “Although there is an adjustment plan already announced by the Ministry of Finance, which alleviates doubts about how to finance the expansion of expenses allowed by Constitutional Amendment 126 (formerly the Transition PEC), the future of public accounts remains undefined”, says the text . According to the document, the next fiscal regime, which should be announced in March to replace the spending ceiling, should “pave a credible path” for public accounts. With the lower growth of the world economy, resulting in a drop in the prices of basic products – which boosted revenue in 2022 – and the slowdown in the domestic job market, the economists’ recommendation is that this adverse scenario “recommends investing in an agenda for side of [corte de] expenditure”. “The path traced for the debt shows the size of the fiscal policy challenge (…) We hope that future signals, particularly the definition of the new fiscal anchor, will contribute to improve the economic and fiscal scenario, in order to sustainability for the public debt”, they conclude.

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