Brazilian federal public debt ends 2024 within the target, at R$ 7,316 trillion.

BRASILIA (Reuters) - Brazil's federal public debt closed 2024 at 7,316 trillion reais, the National Treasury reported on Tuesday, predicting that by the end of 2025 the stock could reach up to 8,500 trillion reais, a nominal increase of 16,2%.

After a challenging year for managing public debt, with fiscal noise in Brazil and uncertainties about the US economy, the Treasury projected that it will become increasingly dependent on bonds linked to the Selic rate, securities sought by investors during times of high volatility and which carry risks for the cost of debt in the short term.

In absolute terms, the growth of federal debt last year was 795,7 billion reais, driven by a 1,55% increase in December compared to November. The final figure fell within the range of 7,0 trillion to 7,4 trillion reais established as a target in the Treasury's Annual Financing Plan (PAF) for 2024.

For 2025, the Treasury's goal is for the federal public debt to end the year in the range of 8,100 trillion reais to 8,500 trillion reais, well above 2024.

In September of last year, faced with an acceleration in the share of Selic-linked bonds in public debt, the Treasury revised the PAF (Annual Financing Plan) and altered the projected composition for 2024. The ministry increased the share of Selic-linked bonds and reduced the forecasts for inflation-linked and fixed-rate bonds.

The share of Selic-linked bonds increased from 39,66% at the end of 2023 to 46,29% in December, within the revised target of 43% to 47%.

The forecast is that this share will continue to rise this year. According to the Treasury, securities linked to the Selic rate will increase to between 48% and 52% in 2025.

With a greater reliance on these post-fixed securities, the government is subject to abrupt increases in public debt interest expenses during periods of high Selic rates, which is happening now, with the Central Bank implementing a monetary policy shock to control inflation.

"Despite this increase and concentration (of bonds linked to the Selic rate), the Treasury is still in a comfortable position regarding cost," said the Undersecretary of Public Debt at the Treasury, Daniel Leal, arguing that there is diversification in the debt stock, with lower-cost bonds.

According to him, it is likely that the long-term public debt composition strategy, which aims for a 23% share of bonds linked to the Selic rate, will not be achieved by the Treasury in 10 years given this recent development. However, the government will continue to pursue this goal, he said.

The Treasury Secretary, Rogério Ceron, stated that the forecast for greater participation of these securities reflects market interest. According to him, there is no point in acting against the demand for these bonds.

Regarding fixed-rate bonds, their share fell to 21,99% of the total at the end of 2024, compared to 26,53% in December 2023. This level, which remained within the target of 22% to 26%, is expected to be between 19% and 23% in 2025, according to the PAF (Annual Financing Plan).

Inflation-indexed bonds closed 2024 at 26,96% of the debt, below the 29,76% level recorded a year earlier, while the benchmark for the year was 25% to 29%. For 2025, these bonds are expected to represent 24% and 28% of the total.

Exchange rate-linked bonds accounted for 4,76% of total debt in December of last year, compared to 4,05% in December 2023, also within the target range of 3% to 7%. They are expected to remain between 3% and 7% again by 2025.

The Treasury's goal is for the portion of debt maturing within 12 months to be in the range of 16% to 20% in 2025, after closing last year at 17,9%. The target for the average maturity of the debt will move to the range between 3,8 years and 4,2 years, after the proportion closed 2024 at 4,0 years.

MATTRESS - At the close of the year, the liquidity reserve – a safety cushion for managing public debt – stood at 860 billion reais, below the 982 billion reais level at the end of 2023. This amount is sufficient to cover 6,24 months of future maturities, a level considered comfortable by the Treasury.

Regarding the average cost of the debt stock, the level rose to 11,80% per year, compared to 10,51% at the end of the previous year. The average cost of domestic debt issuances, in turn, fell to 11,04%, compared to 11,62% in December 2023.

The share of non-residents in domestic public debt, in turn, rose from 9,48% to 10,20% at the end of 2024.

Ceron stated that it is still too early to say whether there is a trend of renewed participation by foreign investors in the debt, adding that this flow tends to increase if the country continues to improve its ratings from risk agencies.

(By Bernardo Caram)