Gross debt is expected to reach 100% of GDP in ten years due to the pandemic, says IFI.

Wellton Máximo, Agência Brasil - The expenses caused by the fight against the coronavirus pandemic will reverse the trajectory of Brazil's gross public debt. According to projections released today (14) by the Independent Fiscal Institution (IFI), a Senate advisory body, the Gross General Government Debt (DBGG) will end 2020 at 84,9% of the Gross Domestic Product (GDP, the sum of the wealth produced).

Brazil's gross general government debt (DBGG) ended 2019 at 75,8% of GDP, marking its first annual decline since 2013. The previous projection from the IFI (Independent Fiscal Institution), released in November, estimated that gross debt would end 2020 at 79,2% of GDP, peak at 80,7% of GDP in 2024, and then fall in subsequent years. Now, according to the institution's baseline scenario, which considers an intermediate picture between the best and worst projections, DBGG will rise this decade, reaching 100,2% of GDP in 2030.

According to the IFI (Independent Fiscal Institution), any decrease in government debt in the next decade will depend on reducing the government's primary deficit from 2030 to 2033. In the most pessimistic scenario, the gross government debt could reach 138,5% of GDP by 2030.

The IFI (Independent Fiscal Institution) forecasts a 2,2% contraction in the economy this year. This estimate is more optimistic than those of several international organizations, such as the World Bank, which projects... 5% shrinkage in Brazil's GDP in 2020, and from the IMF, which projected drop of 5,3%.

Primary deficit

Public debt rises when the government registers primary deficits, negative results excluding debt interest. Since 2014, the Central Government – ​​National Treasury, Social Security and Central Bank – has registered successive deficits. With the extra expenses caused by the coronavirus pandemic, the IFI's projection for the Central Government's primary deficit jumped from R$ 124,1 billion to R$ 514,6 billion in 2020, equivalent to 7% of GDP.

The forecast is more pessimistic than the deficit of R$ 419,2 billion (5,55% of GDP) projected for this year. presented two weeks ago by the Ministry of Economy. Tomorrow (15), the ministry will release the official estimate for the primary deficit in 2021 in the draft of the Budget Guidelines Law for next year.

The projection for the central government's primary deficit in 2020 rose from R$ 124,1 billion to R$ 514,6 billion, or 7% of GDP. Measures taken to mitigate the crisis account for R$ 282,2 billion of the expected increase of R$ 390,5 billion. The consolidated public sector, which includes states, municipalities, and state-owned enterprises, is expected to register a primary deficit of R$ 546 billion, or 7,5% of GDP.

According to the IFI (Independent Fiscal Institution), actions to mitigate the effects of the economic crisis will have a fiscal impact of R$ 282,2 billion on this year's primary result. Of this total, R$ 69,7 billion is related to the reduction or suspension of taxes, and R$ 212,5 billion refers to increased spending, such as extraordinary credits for health, transfers to states and municipalities, and the payment of emergency aid of R$ 600 to people in vulnerable social situations for the next three months. The primary deficit will also widen with the contraction of the economy, which will reduce federal revenue.

Refurbishment

According to the IFI's assessment, any improvement in public debt in the coming years will depend on greater fiscal effort and the approval, after the end of the pandemic, of a reform agenda that controls public spending and reduces primary deficits, allowing for a faster resumption of economic growth.

If this occurs, gross debt would stabilize at 82,7% of GDP in 2023 and fall to 71,7% in 2030, in the most optimistic simulation. The nominal deficit would decrease from 10,3% of GDP in 2020 to 2,1% of GDP by 2030 in the same scenario.