Brazilian Public Accounts to Close 2020 Year with R$828.6 Billion Deficit

RIO DE JANEIRO, BRAZIL – The public accounts should close this year with a deficit of R$828.6 billion. The figure corresponds to 12 percent of everything the country produces – the Gross Domestic Product (GDP). The projection was released yesterday by the Ministry of Economy. The result is worse than previously projected – a deficit of 9.9 percent of GDP.

According to the Ministry’s projections, in 2021 the primary deficit (revenues minus expenses, excluding interest expenses) should reach 2.3 percent of GDP. In 2022, the projected negative result is 1.5 percent of GDP, reaching one percent in 2023, 0.5 percent in 2024 and zero percent in 2025. In 2026, the government projects that the public accounts will again be positive, with a primary surplus of 0.5 percent of GDP, increasing to one percent in 2027, 1.5 percent in 2028 and two percent in 2029.

Special Treasury Secretary Waldery Rodrigues reported that the additional primary effort, due to measures to tackle the crisis caused by the Covid-19 pandemic, adds up to R$521.3 billion. Of this total, R$508.5 billion represent an increase in expenses and R$12.8 billion in revenue losses, caused by the reduction of tax rates to zero.

Of the total expenses, R$501.1 billion are fixed in the budget. There is also R$500 million without budget allocation, referring to the suspension of loan instalments of the Student Financing Fund (FIES), and R$7 billion with no official action, classified by the Ministry as “additional measures under discussion”.

The general government gross debt (DBGG), which accounts for the liabilities of the federal, state and municipal governments, is expected to reach 98.2 percent of GDP by the end of 2020, an increase of 22.4 percent of GDP compared to the closing of 2019 (75.8 percent). In the following years, public debt would be “virtually stable”, reaching 98.6 percent of GDP in 2024 and then would enter a downward trajectory, closing 2029 at 92.2 percent of GDP. “The relative stability of DBGG/GDP between 2021 and 2024, even when faced with significant primary deficits, is explained by expected low real interest rates and a rebound in real GDP growth,” says the Ministry’s report.

The net public sector debt (balance between total credits and debits of the federal, state and municipal governments) should reach 69.9 percent of GDP in 2020, 14.2 percentage points above that recorded in late 2019 (55.7 percent). “The impact of the crisis on the DLSP is mitigated by the appreciation of international reserves, due to the exchange rate fluctuation [dollar rise]. But in the medium term, the DLSP/GDP has a persistent growth trend until 2027, reaching 81.7 percent in 2029,” the Ministry adds.

In 2020, the report says, “the increase in debt is partly explained by fiscal measures that increase the primary deficit and partly by the impact of the crisis on the macroeconomic scenario, primarily on GDP.”

According to the report, the growth of the two indicators – gross and net debt – in 2020 compared to the previous year, “of 22.4 and 14.2 percent of GDP, are the highest of this century and are mainly the result of the impact of the crisis caused by the novel coronavirus pandemic”. “Brazilian public indebtedness will reach a new level, which will require an even greater fiscal effort in the medium term than was sought before the crisis”, stressed the text.

Source: Agência Brasil