Legal Limit to Government Net Indebtedness
The 2020-2024 National Budget Law No. 19,924, promulgated in December 18, 2020, includes a new authorization framework for Central Government indebtedness. Article 696 of this law sets a cap to Government Net Indebtedness (GNI). GNI is defined as gross indebtedness (bond market issuance and disbursed loans) net of amortizations and the accumulation of Central Government’s liquid and other financial assets, during the fiscal year.
For 2020, the Central Government’s net indebtedness limit was set at USD 3,500 million, and the observed figure was USD 3,113 million (see page 2 of the July 2021 Debt Report). The legal cap for GNI for 2021 is set at USD 2,300 million.
The new borrowing framework also includes a safeguard clause that allows for an increase in the legal cap, and is only applicable under extraordinary circumstances (unexpected events such as natural disasters, pandemic, strong change in relative prices or an economic recession). When invoked, the clause allows for up to an additional 30% increase in the baseline net indebtedness amount authorized by Congress.
In July 2021, the government communicated to Congress the need to activate the safeguard clause, in light of the additional budgetary resources required to mitigate the health, social and economic impact of Covid-19. Hence, the augmented legal limit for net indebtedness in 2021 is USD 2,990 million (see the transcript of the Ministry of Economy and Finance´s presentation in Congress, in Spanish).
Finally, in the latest Annual Budget Review submitted to Congress, the maximum amount of GNI for 2022 was set at USD 2,100 million.