Public debt grows in September after six months of falling

After six months in decline, the government’s gross debt grew 0.3 percentage point in September and reached 83% of GDP (Gross Domestic Product). The data were released by the Central Bank this Friday (29).

According to the BC, the result was mainly due to the incorporation of interest to the amount, which pushed the debt up by 0.5 percentage point, and the 5.76% rise in the dollar in the month, 0.3 point.​

In addition, the government increased the issuance of bonds for debt financing, which contributed 0.2 percentage point to the increase.

“The increase in gross debt was mainly caused by the exchange rate devaluation, as other factors were offset by GDP growth in the period,” explains the head of the BC’s statistics department, Fernando Rocha.

In the annual comparison, however, there was a reduction of 6.2 percentage points in gross debt in relation to GDP.

In all, gross debt totaled R$6.9 trillion in September. If the value in reais is considered, the debt continued to grow in recent months. In August, the amount totaled BRL 6.84 trillion and BRL 6.79 trillion in July.

The comparison is made against GDP 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 89.36% 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 health crisis, the debt was at 75.16%.

As of March, 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 81.8% of GDP and grow again in the following years, reaching 85.5% in 2027.

In the opposite direction, the net debt, which discounts government assets, dropped by 0.8 percentage point in September and reached 58.5% of GDP. According to BC, the dollar’s rise in the month pulled 0.9 points down.

Rocha explains that, in net debt, exchange devaluation has the opposite effect to that observed in gross debt. “The public sector is a creditor in foreign currency, so the exchange devaluation reduces the net debt”, he pointed out.

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.

The growth of economic activity reduced the amount by 0.6 point and the positive result of public accounts in the month contributed by 0.2 point.

According to the BC methodology, the government had a surplus of R$ 12.9 billion in September. In the last twelve months, however, the public sector has accumulated a negative result of R$ 52.9 billion (0.63% of GDP).​

For the month, it is the highest result since 2010. “The main factor that explains the improvement in the primary result is the growth in real net revenue and the reduction in expenses, impacted by the basis of comparison [setembro de 2020], and for the effects of the measures against the pandemic,” Rocha said.

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$ 42 billion in the month and R$ 404.6 billion in 12 months.

In September, the government disbursed R$ 55 billion in interest on the public debt. In the same month last year, there were R$ 38.9 billion. The increase was due to the increase in the basic rate (Selic) and inflation in the period, in addition to losses of R$ 12.9 billion in foreign exchange operations.