The government announced Thursday that public accounts had in September the largest primary deficit for the month in the Central Bank’s historical series, started in 2001: R$9.05 billion. It was the second consecutive monthly deficit and the third worst in history. Because of this, the government is no longer ensuring the primary-surplus target of 2.3% of GDP this year, to which Finance Minister Guido Mantega had committed in July.
The commitment now is to the target of R$73 billion for the central government (Treasury, Social Security and Central Bank). To achieve this, the federal government will have to obtain a primary surplus of R$46.32 billion, equivalent to 1.32% of GDP, in only three months (October to December). To have an idea of the challenge, the central government’s surplus was of only R$26.68 billion from January to September, according to data released Thursday by the Central Bank.
What makes the task even more difficult is that tax revenues are weak, with shortfalls every month in relation to what was originally projected. Thus, meeting the fiscal target of the central government (Treasury, Social Security and Central Bank) will depend basically on the so-called extraordinary revenues. They include the signing bonus of Libra, oil field recently auctioned, and the revenue to be obtained with the reopening of Refis da Crise, a program to refinance past-due tax debts, and of two new installment plans for tax payments that benefit banks, insurers and their units.
Even then, these revenues will not be enough. With the Libra bonus, the government expects to obtain R$15 billion, and with the Refis and the two installment plans, from R$7 billion to R$12 billion, according to Federal Revenue estimates. This means that, at best, these two revenues will reach R$27 billion. So R$19.3 billion or 0.55% of GDP (R$46.32 billion minus R$27 billion) will still be missing. The government didn’t give Thursday any indication of how this amount may be obtained.
Even with low tax revenues, federal government spending continues growing at a fast pace. In the January-September period, total expenditures (including social-security benefits) grew 13.5% compared to the same period of last year. The National Treasury Secretariat (STN) informed Thursday that expenditures are increasing 4.6% above nominal GDP variation. This means they are growing as a proportion of GDP, whereas revenues show slight contraction as a proportion of GDP (-0.5%). If primary expenses grow more than primary revenues, the government only manages to make numbers add up with the reduction of the primary surplus.
The most worrying is that the reduction of the federal government’s primary surplus is not resulting in more public investment. According to the STN, investments showed a contraction of 5.2% in relation to nominal GDP expansion in the January-September period of this year, compared to the same period a year earlier.
Source: Valor International