Brazilian Government Will Require R$367 Billion Increase in Borrowing Limit for 2020

RIO DE JANEIRO, BRAZIL – The budget bill submitted by the government on Friday, August 30th, anticipates the need for an addition to the borrowing limit of R$367 (US$88.4) billion to cover a number of public expenses, such as social welfare benefits, payment of the “Bolsa Familia” (Family Allowance), unemployment insurance, among others.

The measure depends on Congressional ratification, because of the requirement to comply with the so-called golden rule.

Established by Article 167 of the 1988 Constitution, the golden rule determines that the government may not borrow to finance current expenditures (such as maintenance of public administration), but only for capital expenditures (such as investment and repayment of public debt) or to refinance its public debt.

In recent years, consecutive fiscal deficits have jeopardized compliance with the rule, which has prompted the Treasury to seek funding sources to keep cash on hand and reduce the need to issue public bonds.

The government expects this supplemental credit line to be approved by mid-2020. The federal government had needed ratification of an additional credit of R$248 million this year to cover expenses for which there was no revenue.

“We are conditionally submitting an amount of R$367 billion subject to approval by National Congress. Compare this figure with the amount sent in last year’s PLOA [Draft Budget Law], which was R$248 billion.

“So, there is compliance with the golden rule and also additional tax-budgetary stress, because of the current budget structure that we have,” said Waldery Rodrigues, the special secretary of Finance, during a press conference to introduce the 2020 Budget, on Friday, August 30th.

In global terms, the 2020 Budget is subject to a total spending ceiling of R$1.454 trillion, 3.37 percent higher than that approved for this year. The percentage increase corresponds to the variation of the Broad Consumer Price Index (IPCA) between July 2018 and June 2019.

In the federal government’s primary expenditure breakdown (Social Welfare, Central Bank and National Treasury), most of it is for Social Welfare, which next year anticipates spending of R$682.6 billion, an amount that is almost R$45 billion higher than that expected for 2019.

Although the 2020 Budget has already incorporated the impact of the approval of the Social Welfare reform, passed in the Chamber of Deputies but contingent on the Senate’s approval, one of the factors for this growth is the increase in the number of retirement requests due to the stricter social welfare rules, according to the government.