Global public debt is projected to exceed 95% of Gross Domestic Product (GDP) in 2025, according to data released by the International Monetary Fund (IMF). Since 2019, this indicator has risen by about 15 percentage points of GDP, indicating a significant increase in global public debt.
In advanced economies, the average primary deficit recently recorded 2.5% of GDP, while in emerging economies this average reached about 3.8%, highlighting fiscal challenges on different fronts. Brazil, in turn, showed sharp movements in interest rates over the past few years.
Between 2016 and 2019, long-term interest rates in the country fell from 16% to less than 10%. In addition, the Central Bank reduced the Selic rate from 14.5% to approximately 5% during the same period. However, in the last two years, from 2023 to 2024, Brazil experienced a rise in real interest rates, mainly due to strong fiscal stimulus.
This high monetary environment is set in the context of a Brazilian tax burden close to 38% of GDP, with public spending at equivalent levels. The discussion, held at a meeting of the Federation of Industries of the State of São Paulo (Fiesp) in March 2024, highlighted the country’s need to maintain high interest rates to control persistent inflationary pressures.
In general, the expansionary fiscal policy adopted in Brazil has been pressuring monetary policy, which needs to maintain high interest rates to monitor inflation. Between 2023 and 2024, this movement led to an increase in long-term interest rates, precisely in response to the expansion of public spending and the stimulus to aggregate demand.
The scenario also shows that the combined impact of fiscal policy on aggregate demand is decisive for the final effect on the economy, which may result in expansionary or contractionary effects. Inflation targets with a high historical record make it less feasible to reduce interest rates by raising these targets, according to experts present at Fiesp.
On the other hand, proposals for sustainable fiscal adjustment include reviewing public spending and reducing the indexation of government costs. The desired fiscal stability involves maintaining a primary surplus between 1% and 2% of GDP in the coming years. In this way, the country would try to contain the growth of public debt and improve conditions for monetary policy.
However, the increase in tax revenue also entails risks, such as the erosion of the fiscal base in the medium and long term. In addition, the constant changes to fiscal rules in Brazil compromise economic predictability, a critical factor for investment and production decisions.
Clear communication and the credibility of authorities are pointed out as decisive elements to accelerate the fall of long-term interest rates and stabilize the trajectory of public debt. Meanwhile, the country faces a high cost of capital in the economy, persistent credit growth, and challenges in meeting the inflation targets set by the Central Bank.
The conclusion of the process still depends on the implementation of fiscal measures that promote greater discipline and predictability, in addition to the continuity of monetary policy. Authorities indicated that they will continue monitoring the Brazilian fiscal and monetary scenario to adjust strategies that can lead to economic stabilization.
