Brazil’s Public Sector Deficit Shrinks in February, But Debt Burden Rises

Brazil’s public sector recorded a primary deficit of R$18.973 billion ($3.21 billion) in February 2025, according to data released by the Central Bank.

This figure reflects an improvement compared to February 2024, when the deficit reached R$48.692 billion ($8.25 billion). The results highlight progress in fiscal discipline but reveal challenges in managing the country’s growing debt burden.

The February deficit was driven by a R$28.517 billion ($4.83 billion) shortfall from the central government, offset by surpluses of R$22.950 billion ($3.89 billion) from states and municipalities and R$299 million ($51 million) from state-owned enterprises.

Over the 12 months ending in February, the primary deficit stood at R$15.885 billion ($2.69 billion), equivalent to 0.13% of GDP—a sharp decline from January’s 0.39%.

However, when interest payments are included, the nominal deficit for February reached R$97.226 billion ($16.47 billion). Over the past year, the nominal deficit totaled R$939.839 billion ($159.29 billion), or 7.91% of GDP, slightly improving from January’s 8.1%.

Interest payments alone accounted for R$78.253 billion ($13.26 billion) in February, underscoring the financial strain of Brazil’s high borrowing costs.

Brazil’s Growing Debt Burden

Brazil’s gross public debt rose to R$9.045 trillion ($1.53 trillion) in February, representing 76.2% of GDP—up from 75.7% in January (R$8.940 trillion or $1.51 trillion).

The increase was primarily driven by nominal interest appropriations adding 0.7 percentage points and net debt issuance contributing another 0.1 percentage points, partially offset by nominal GDP growth reducing the ratio by 0.4 percentage points.

Under the IMF’s broader debt calculation framework, which includes government bonds held by the Central Bank, Brazil’s debt-to-GDP ratio climbed to 88.7% from January’s 87.1%.

This discrepancy highlights the country’s heavy reliance on debt financing amid persistent inflation and elevated interest rates. Net public sector debt also increased to R$7.927 trillion ($1.34 trillion), or 61.4% of GDP, up from January’s level of 61.1%.

The monthly rise was attributed to nominal interest payments adding 0.7 percentage points and the primary deficit contributing another 0.2 percentage points, while external debt adjustments and GDP growth reduced the ratio by a combined total of 0.5 percentage points.

The Central Bank emphasized how economic variables impact debt levels: a 1% currency appreciation raises net debt by R$8.3 billion ($1.41 billion) but reduces gross debt by R$11.1 billion ($1.88 billion). Similarly, a one-point increase in inflation over a year adds approximately R$19 billion ($3.22 billion) to both net and gross debt.

These figures underscore Brazil’s fiscal challenges as it balances spending cuts with high interest obligations while aiming for a zero primary deficit target in 2025 under President Luiz Inácio Lula da Silva’s administration—a goal that allows for a tolerance margin of up to 0.25% of GDP.

This story demonstrates Brazil’s ongoing struggle to stabilize its finances while managing a substantial debt load that threatens long-term economic stability amidst global uncertainties and domestic pressures on fiscal policy decisions.

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