Brazil’s Treasury: 2021 year-to-date deficit would be near zero without Covid-19 spending

RIO DE JANEIRO, BRAZIL – Without the extra spending on tackling the Covid-19 pandemic, the Central Government (Federal Treasury, Social Security and Central Bank) would have a primary deficit of only R$3 billion (US$578 million) in the first 7 months of the year, said yesterday, August 30, Federal Treasury Secretary Jeferson Bittencourt.

The Federal Treasury Secretary announced the estimate when explaining the R$73.432 (US$14.2) billion negative result recorded from January through July this year.

According to the Secretary’s assessment, Brazil is showing an effective fiscal improvement and registering progress, which can be expressed in the drop of primary deficit and gross public debt this year.

In July, the primary deficit – negative result in the government’s accounts excluding public debt interest – totaled R$19.829 billion, compared to a R$87.886 billion deficit in the same month last year.

DEBT

As for the General Government Gross Debt (GGDB), the Treasury highlighted in the data release brief that the indicator fell 5.3 percentage points of Gross Domestic Product (GDP) from February through June this year, after having risen 15 percentage points of GDP between December 2019 and February 2021. According to the agency, estimates for next year are optimistic.

“Moreover, projections show that in 2022 debt will be a few percentage points above that forecast for this year before the pandemic,” the text highlighted.

This year, the government debt in relation to GDP drops partly due to the improvement in public accounts caused by the decrease in spending on the pandemic and the increase in tax collection related to economic recovery.

Another reason for the drop is inflation, which increases the nominal GDP and raises the denominator of the debt/GDP ratio, thereby reducing the value of the fraction.

According to the Treasury, the increase in spending during the pandemic represented a short-term measure, which does not compromise the Brazilian public debt’s medium-term sustainability. “It is perceived, therefore, that the country has the capacity to generate better fiscal results when compared to the pre-pandemic period and, by following this path, projections should continue to improve,” the brief stated.

Finally, the Treasury called for the maintenance of the current fiscal rules – anchored in primary result target, spending cap and golden rule – to sustain fiscal responsibility in Brazil. “It is necessary to remember that this improvement came from respect for a set of fiscal rules, and maintaining this commitment is what will cause expectations to materialize to their full potential,” the agency argued.

By maintaining and complying with fiscal rules, public debt could continue to drop in the coming years, through lower long-term interest rates that reduce the cost of renewing government debt.

“To the extent that the scenario for fiscal indicators is better perceived, it should be reflected in lower debt roll-over costs, which in turn may generate even more positive effects on the prospective fiscal and economic framework itself,” the Treasury brief concluded.

This article was produced by The Rio Times’ automated newsroom system. How we use AI · Report an error