The government has debts by itself, it is not necessarily bad, but it is necessary to know the budget restrictions of public accounts. The assessment is from economist Marco Cavalcanti, public finance coordinator of the Institute of Applied Economic Research (IPEA), linked to the Ministry of Planning and Budget.
Cavalcanti, who was Under Secretary of Fiscal Policy of the Secretariat of Economic Policy of the Ministry of Economy, in 2019 and 2020, talked with Agência Brasil about aspects of Federal Public Debt (DPF), as trajectory and sustainability.
Public debt is a way for the government to finance itself. It arises and increases whenever the government spends more than it collects. When taxes and other revenues are not enough to cover expenses, the government is funded by creditors.
Information on debt behavior, their holders and paid amounts are updated monthly by the National Treasury, an institution of the Ministry of Finance.
Professor at the Getulio Vargas Foundation (FGV) and the Pontifical Catholic University of Rio de Janeiro (PUC-Rio), the economist describes that, in 2024, government spending to honor commitments-called debt service-was 41.6% of the federal budget performed.
Within this value are amortizations and refinances, which total R $ 1.658 trillion (34.3% of the budget); and interest, R $ 352 million (7.3%).
All of these numbers refer only to federal government debt, which is only a portion of Gross Government Gross debt (DBGG)-which includes federal, state and municipal governments and the National Institute of Social Security.
This amount closed January 2025 at R $ 8.9 trillion, representing 75.3% of the total wealth produced in one year by Brazil, measured by the gross domestic product.
To whom the country owes
The most recent survey of February, released on the 28th, pointed out that the federal public debt stock was R $ 7,492 trillion. This value does not mean that it needs to be paid or refinanced at all at once, as there is an escalation of salaries, which have an average period of 4.08 years.
R $ 7,178 trillion are due to domestic creditors;
R $ 314.34 billion to international creditors.
To contract a debt, the government exchanges government bonds for money, which is used for its needs. In return, the creditor combines receiving something beyond the same money borrowed, that is, the debt remuneration, which is charged in the form of interest.
According to the Annual Financing Plan (PAF), presented in early February, the DPF should end 2025 between R $ 8.1 trillion and R $ 8.5 trillion.
The remuneration that government needs to pay for creditors follows the proportion:
47.77% of the Selic rate linked to the Selic rate – currently at 14.25% per year;
20.54% pre-fixed (fixed fixed rate at the time of debt hiring);
27.51% indexed to inflation;
4.18% corrected in dollars.
And who are the creditors?
29.8% of the debt are due to financial institutions;
24.1% to pension funds;
22.3% to investment funds;
9.7% to non -residents (foreigners);
3.2% to government;
3.8% to insurers;
7.1% to others.
Individuals may hold government bonds, either directly, as an investment in Treasury Direct, or indirect, through investment funds, for example.
Debt need
Ipea Marco Cavalcanti researcher explains that when the government finances via debt, it does so because it is not getting revenues to finance expenses, “which are deemed necessary by the government and, therefore, by society, which is represented by the government and congressmen.”
Cavalcanti notes that sometimes people tend to interpret debt as negative, “which is not the case.” He cites the example of public spending during the Covid-19 pandemic, which began in 2020, which left people without employment and companies without revenues. At that time, governments around the world endured to provide aid and incentives to society.
However, he warns that he must be careful with budget restrictions so that debt does not escape control.
“The problem is that when the debt begins to increase very dangerously, it can have an unsustainable trajectory, so it begins to weigh very strongly [o gasto com] interest in the current budget ”.
The greater the expense on debt service, the lower the budget space for other expenses such as health, education, social security, functionalism and investments.
The economy teacher argues that there are mechanisms for controlling public spending, such as the tax framework, which dictates the pace of growth of government expenses so that it is possible to control public debt.
>>> Know here what is the tax framework
The former fiscal policy supporter, however, points out that the framework, by itself, is not able to stabilize debt, since some government expenses, such as education and health, have their own behavioral rules.
“It has a set of other rules, including constitutional, which tend to lead to strong expense growth.”
Cavalcanti points out that concern for public spending is not just a matter of Brazil. Many countries adopt tax rules for spending control. “You impose a restriction to avoid greater evil.”
Interest Factor
The IPEA coordinator points out that, like the monthly economy the government makes to pay the debt (primary surplus), the interest charged by creditors are a central element in the equation that dictates debt behavior. The lower the required interest rates, the easier to control the debt.
He explains that the decision on Selic by the Central Bank (BC) is not limited to inflationary control, but also takes into account the appetite of creditors by debt securities.
“Fiscal discipline is one of the important ways to try to reduce this tax risk, reduce this rate of equilibrium interest rates,” he says.
“Holding spending and avoiding waste, improving spending efficiency, pointing to a sustainable debt trajectory can end up generating a virtuous circle,” he adds, indicating that creditors will accept lower interest rates to finance the government, as it would make debt press less budget.
According to the teacher, the government works with the growing federal public debt scenario until 2027/2028, with a drop from 2029. The projections of financial market institutions are more pessimistic, some believing in stabilization from 2033.
