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31 Mar 2016
Brazil fiscal policy continues deteriorating – Deutsche Bank
Research Team at Deutsche Bank, notes that the Brazil’s public sector posted a consolidated primary deficit of BRL23bn in February, in line with their forecast of BRL22bn (which was revised following the publication of the much larger-than-expected above-the-line central government deficit yesterday).
Key Quotes
“While the deepening economic recession continues to hurt tax revenues, the government does not have much leeway to lower expenditures, as most of them are mandatory and discretionary spending (esp. investments) has already been significantly compressed.
Since the government was able to post a large surplus in January (mainly due to a large inflow of concession revenues), the public sector posted a primary surplus of BRL4.9bn in 2M16. However, this number compares to a much larger surplus of BRL18.9bn in 2M15. The deterioration was caused mainly by an increase in the social security deficit (BRL18.7bn in 2M16 vs. BRL11.5bn in 2M15) and a decline in the surplus posted by regional governments (BRL10.7bn vs. BRL15.7bn). The consolidated primary deficit reached 2.1% of GDP in the year to February, the largest deficit on record.
We forecast a consolidated primary deficit of 1.2% of GDP this year, but we believe the risk is on the downside even taking into account the potential windfall to be delivered by the “repatriation” bill, as the political turmoil is preventing the authorities from passing tax increases (such as the CPMF) in Congress and, at the same time, is forcing the government to increase spending to obtain political support to avert the president’s impeachment (yesterday, for example, the federal government released BRL1.5bn in pork-barrel money).
Also, the government is proposing to modify the 2016 Budget Guideline Law so as to allow a primary deficit of as much as 1.6% of GDP. The public sector posted a nominal deficit of BRL52.8bn in February, and a nominal deficit of 10.75% of GDP in the year to February. The net public debt rose to 36.8% from 35.8% of GDP in January.
The internal debt climbed to 56.8% from 56.1% of GDP, while the government’s net external assets (mainly international reserves) fell slightly to 20.0% from 20.3% of GDP. The gross public debt increased further to 67.6% from 67.4% of GDP.”
Key Quotes
“While the deepening economic recession continues to hurt tax revenues, the government does not have much leeway to lower expenditures, as most of them are mandatory and discretionary spending (esp. investments) has already been significantly compressed.
Since the government was able to post a large surplus in January (mainly due to a large inflow of concession revenues), the public sector posted a primary surplus of BRL4.9bn in 2M16. However, this number compares to a much larger surplus of BRL18.9bn in 2M15. The deterioration was caused mainly by an increase in the social security deficit (BRL18.7bn in 2M16 vs. BRL11.5bn in 2M15) and a decline in the surplus posted by regional governments (BRL10.7bn vs. BRL15.7bn). The consolidated primary deficit reached 2.1% of GDP in the year to February, the largest deficit on record.
We forecast a consolidated primary deficit of 1.2% of GDP this year, but we believe the risk is on the downside even taking into account the potential windfall to be delivered by the “repatriation” bill, as the political turmoil is preventing the authorities from passing tax increases (such as the CPMF) in Congress and, at the same time, is forcing the government to increase spending to obtain political support to avert the president’s impeachment (yesterday, for example, the federal government released BRL1.5bn in pork-barrel money).
Also, the government is proposing to modify the 2016 Budget Guideline Law so as to allow a primary deficit of as much as 1.6% of GDP. The public sector posted a nominal deficit of BRL52.8bn in February, and a nominal deficit of 10.75% of GDP in the year to February. The net public debt rose to 36.8% from 35.8% of GDP in January.
The internal debt climbed to 56.8% from 56.1% of GDP, while the government’s net external assets (mainly international reserves) fell slightly to 20.0% from 20.3% of GDP. The gross public debt increased further to 67.6% from 67.4% of GDP.”