Interest takes up nearly 12% of Brazil families’ income

Approximately six percent of the gross domestic product (GDP) for the half-year and 11.79 percent of the income of families were compromised by interest in the first half of 2021, a study by the São Paulo State Commercial Federation of Goods, Services, and Tourism (FecomercioSP) shows. The amount totaled $43.1 billion in the period—the equivalent of 73 percent of the funding put towards the emergency allowance paid last year to Brazilians who lost income or employment during the pandemic.

Altamiro Carvalho, the federation’s economic adviser, said this week that interest is second only to rent among all of Brazilians’ expenditures. “Interest spreads across spending in such a way that people have no idea what its impact on home budget is,” he stated. Spending on interest exceeds total yearly costs in education, services, and clothing.

The research also found that “the allowance paid by the federal government, which could further encourage consumption among families, homogeneously benefiting other sectors of the economy, was significantly compromised by the clearance of these fees, channeled by the financial system.”

The study gauges the volume used in the payment of interest from loans received in free credit operations in the first six months of 2019, 2020, and 2021.

“If half of [the total interest] had not been paid, you could be injecting into the economy funds for family consumption, providing conditions for consumption in a really impacting way which could obviously stimulate production, reaching industry and boosting the level of economic activity as a whole,” Carvalho declared. He also said that the payment of interest, in turn, goes to financial institutions and also comes back to the market as interest.

Clearance

Under legal entities, the study shows that companies used up $16.6 billion to clear interest—up 8.2 percent from 2020. The total represents two percent of the GDP for the first half-year. Brazil’s National Program for the Support of Microbusinesses and Small Companies (Pronampe), for instance, released $6.9 billion in funds to more than 500 thousand businesses in 2020. Thus, the amount of interest paid by firms, in the first six months this year, is nearly 2.5 times as much as the sum earmarked under the program.

FecomercioSP also point out that insolvency among families is under control. The amount of loans overdue for over 90 days was down 14.4 percent in the first half-year of 2021, reported at $10 billion. The insolvency rate was 3.8 percent in the first six months of 2019, 5.3 percent in 2020, and stood at 4.1 percent from January through June in 2021.

Regarding credit this year, considering the span surveyed, “both grants and the balance of credit operations to legal entities grow 1.2 and 5.1 percent year-on-year, respectively,” the federation reported in a note.

“Brazil’s credit,” the federation declared, “brings a high cost to both homes and companies, depriving society of nearly eight percent of the GDP of the half-year for the payment of interest.” The body believes that the imbalance in public accounts is the main factor explaining elevated interest.