Public debt has a fifth consecutive fall and goes to 83.8% of GDP – 08/31/2021 – Market

The government’s gross debt was 83.8% of GDP (Gross Domestic Product) in July, down 0.1 percentage point from the previous month. The data were released by BC (Central Bank) this Tuesday (31).

This is the fifth consecutive fall in the country’s indebtedness to GDP. “The percentage is the lowest since June 2020,” said the head of the BC’s statistics department, Fernando Rocha.

According to him, despite the growth of bond issues for debt financing and the exchange rate devaluation, which would push the debt up, the movement was offset by the rise in GDP.

“Net debt issues increased the amount by 0.7 percentage point and the exchange devaluation by 0.1 point, but these two factors were offset by the effect of the increase in nominal GDP that ended up prevailing,” explained Rocha.

In the annual comparison, there was a reduction of 5 percentage points.

According to the autarchy, the result was mainly due to the increase in GDP in the period, which contributed 0.9 percentage point.

In total, gross debt totaled R$ 6.79 trillion in July. If the value in reais is considered, the debt continued to grow in recent months. In June, the amount totaled R$ 6.72 trillion and R$ 6.69 trillion in May.

The comparison is made against economic activity to show whether government debt is sustainable.

Indebtedness has registered significant growth per month since the beginning of the Covid-19 pandemic. After the virus arrived in the country, the government had to spend more on emergency programs, such as emergency aid and lines of credit for companies.

In February of this year, the debt reached 89.27% ​​of GDP, the highest percentage in the historical series started in 2006. In the same month of 2020, the last before the impacts of the sanitary crisis, the debt was at 75.16%.
As of March, however, indebtedness – in relation to GDP – began to fall.

According to market expectations collected by the BC, the economists consulted project that the debt will end the year at 82.1% of GDP and grow again in the following years, reaching 85.4% in 2024.

Net debt, which discounts government assets, also dropped by 0.5 percentage point in July and reached 60.3% of GDP. According to the BC, the growth of economic activity contributed by 0.7 point and the 2.4% rise in the dollar in the month pulled down 0.4 point.

When the dollar rises, there is a reduction in the value of the net debt in reais because international reserves, measured in US currency, are discounted.

“Regarding the net debt, the growth of nominal GDP was enough to cover the primary deficit and the exchange devaluation ended up reducing the indebtedness”, pointed out Rocha.

According to the BC methodology, the public sector registered a primary deficit of R$ 10.3 billion in July. In the accumulated result for the year, public accounts had a negative result of R$ 15.5 billion.

The primary result indicates the government’s ability to pay the bills, excluding public debt charges. If revenues are greater than expenses, there is a surplus. Otherwise, there is a deficit.

The nominal result, which includes the cost of debt, was a deficit of R$ 55.4 billion in the month.

In July, the government disbursed R$ 45.1 billion in interest on the public debt. In the same month last year, it was R$5.8 billion.

The increase was influenced by losses in exchange swap operations (exchange operations with the market between exchange rate and interest rate changes) carried out by the BC, which totaled R$8.9 billion.

In addition, the increase in inflation and in the basic interest rate (Selic) in the period increased debt expenses.
In twelve months, interest reached R$ 323.5 billion, against R$ 338.1 billion in the twelve months ended in July 2020.