One of the issues that has returned to the center of discussion in Brazil is the increase in government spending and the public debt. With the alternation in power, it is still difficult to understand how the new government will deal with the financial resources and the current debt of the national coffers.
Let’s understand a little more how public debt can impact the country’s economy and if this can make any difference in your finances in the short term, follow along!
What is the total amount of Brazil’s public debt?
The total amount of public debt varies over time, but is usually measured in terms of percentages of gross domestic product (GDP). The value of Brazil’s public debt reached around 7.3 trillion reais in 2022, according to data from the Central Bank of Brazil.
However, these numbers can vary depending on the sources and the specific date you are looking for. Effective changes in debt only happen with changes, in many cases radical, in the way the government manages the budget.
What is the percentage of public debt in relation to GDP?
The percentage of Brazilian public debt calculated in 2022 reached 77.1% of GDP, the debt had been decreasing since September 2021, when it reached a percentage just above 82%. Even so, it still compromises a value well above half of the gross domestic product, which leaves the national economy in a state of fragility.
How is public debt calculated?
Public debt is calculated as the sum of all debts contracted by federal, state and municipal governments. These debts can be contracted with internal and external financial institutions, such as banks, international organizations and by issuing public bonds.
Public debt can be divided into two categories: internal and external. Domestic debt is that contracted with national financial institutions, while external debt is that contracted with foreign institutions or international organizations.
It is important to note that public debt is measured in nominal terms, that is, without adjustment for inflation, and can be expressed as a percentage of GDP (Gross Domestic Product) or as an absolute value in currency.
Which countries have the highest public debt?
Countries with the highest public debt usually developed countries or in development, with larger economies. Some of the countries with the highest public debts include:
- United States: US public debt is the largest in the world and represents about 109% of GDP;
- Japan: Japan’s public debt is the second largest in the world and amounts to approximately 230% of GDP;
- Italy: Italy’s public debt is the third, and makes up about 132% of the Italian domestic product;
- United Kingdom: The UK’s public debt is the fourth largest in the world and is equivalent to 98% of GDP;
- France: Closing the top 5, tied with the United Kingdom, French public debt also reaches 98% of GDP.
These values may vary depending on the source and the specific date. It is important to note that these numbers are from 2021, and some countries may have changed their positions since then.
Why is public debt considered a problem?
Public debt is considered a problem for several reasons, among which we can mention:
- Lack of payment capacity: when public debt reaches very high levels, it can be difficult for the government to pay interest and amortize the debt principal, which can lead to insolvency problems;
- Budget constraint: at a time when the government has to spend a lot of money to pay interest and amortize the debt, this can restrict its ability to spend money in other areas such as health, education and infrastructure;
- Negative effects on the economy: whenever the government struggles to service debt, this can lead to interest rate hikes and increased inflation, which can have unfavorable effects on growth and financial stability;
- Destabilizing financial markets: rising public debt can destabilize financial markets, causing volatility in stock and bond markets and difficulty attracting foreign investors;
- Impacts investor confidence: high public debt can lower investor confidence in the country, which can lead to difficulties in attracting foreign investment and increase the difficulty of obtaining financing.
In addition to these points, high public debt can lead to a decline in consumer confidence, which can have detrimental effects on the economy, and can limit the government’s policy options.