Brazil's Govt 2023 Primary Deficit Forecast Deteriorates

  • Brazil's government projections for its public accounts in 2023 have substantially worsened, with the deficit before interest expenses now nearing the annual fiscal target, as indicated by its latest bimonthly revenue and expenditure report.
  • The projected primary deficit for the year has been expanded to 203.4Bn reais (US$41.46Bn), up from the 141.4Mn reais estimate in September, considering the calculation methodology employed by the central bank, which is used to verify compliance with the annual fiscal target.
  • The updated estimate, prepared by the Planning and Finance ministries, positions the 2023 deficit at a level equivalent to 1.9% of the gross domestic product (GDP), up from the 1.3% shortfall seen in September and very close to the 2.0% target set by the budget law. However, the worsening situation follows a decrease of 22.2Bn reais in projected revenues for the year, coupled with a rise of 21.9Bn reais in expenses.
  • Unlike the Treasury's methodology, the central bank does not permit the inclusion of 26Bn reais from untouched funds allocated to workers earning up to two minimum wages, known as PIS/PASEP, which had not been previously redeemed. This amount was precisely what led the central government's primary result, as calculated by the Treasury, to show a surplus in September, while the central bank reported a deficit for the same period.
  • Treasury Secretary Rogerio Ceron emphasised that his department does not agree with the central bank's approach, highlighting that, based on the Treasury's interpretation, the projected primary deficit for 2023 would increase by a smaller margin, reaching 1.7% of gross domestic product, the report said.
  • New fiscal rules introduced by President Luiz Inacio Lula da Silva's administration is aimed at achieving a primary deficit equivalent to 0.5% of GDP this year. Nevertheless, members of the government's economic team were long contemplating the feasibility of a 1.0% of GDP deficit, a goal that now appears increasingly challenging.
  • According to Ceron, the central government's primary deficit for this year is expected to be 1.3% of GDP by the Treasury's criteria, benefiting from the late-stage accumulation of resources, which traditionally occurs when ministries are authorized to spend but, due to bureaucratic issues, do not effectively do so.
  • The secretary also said the government is in discussions with the central bank on the potential submission of a bill defining the methodology of calculating the primary result, noting that the current practice of the central bank "is not the most modern approach."

 (Source: Reuters)