Fiscal Space and Debt Sustainability

BRAZIL ECONOMICS - Report 26 Oct 2023 by Affonso Pastore, Cristina Pinotti, Paula Magalhães and Diego Brandao

Fiscal space, defined as the government’s flexibility in choosing to increase spending, is a concept closely tied to the sustainability of the public debt. Countries where the real interest rate is lower than the rate of economic expansion have greater fiscal space than countries in which the real interest rate is greater than the economic growth rate.

In the present Report we present an international comparison showing that controlled by the income per-capita Brazil is among the countries with the largest primary spending, as well as a country that needs to produce the largest primary fiscal surpluses to stabilize the debt/GDP ratio. In the past, with adoption of the “macroeconomic policy tripod” and the goal of keeping the debt/GDP ratio within sustainable limits, Brazil established primary surplus targets, while the Fiscal Responsibility Law specified that the creation of permanent expenditures depended on the generation of commensurate permanent revenues. The need to generate primary surpluses restricted the fiscal space.

The new fiscal framework has established targets for real spending growth between 0.6% and 2.5% of GDP but has not guaranteed the generation of the corresponding revenues enabling compliance with the primary result targets. However, even if these have been reached, and the primary results achieved, the debt has risen in relation to GDP, characterizing a relaxation of the rules. A more detailed analysis shows there is no way to guarantee generating the revenues necessary to meet the primary result target. Therefore, the public debt should reach 85% of GDP by the end of 2026, meaning that an unrealistic (or fictitious) fiscal space has been created, because there is no guarantee of sustainability of the debt. In this Report, we analyze this evolution and draw comparisons with the debt sustainability in other countries.

Now read on...

Register to sample a report

Register
Sign-in
Forgot your password?
Copyright 2024 GlobalSource Partners. All rights reserved. This report is prepared for GlobalSource Partners’ clients and may not be redistributed, reproduced, stored in a retrieval system, retransmitted or disclosed, in whole or in part, or in any form or manner, without the express written consent of GlobalSource Partners. This report is distributed simultaneously to our website and other portals used by GlobalSource Partners. The information herein was obtained from various sources and is believed to be reliable but GlobalSource Partners does not warrant its completeness or accuracy. Neither GlobalSource Partners nor any Country Analyst, officer or employee accepts any liability whatsoever for any direct, indirect or consequential damages or losses rising from any use of this report or its contents.