Deficit projection climbs from R$9.3bn to R$14.5bn; Ministry of Finance remains satisfied with financial performance through April

05/23/2024

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Rogério Ceron — Foto: Geraldo Magela/Agência Senado

The Lula administration has revised its primary deficit forecast for 2024 upwards, as revealed in the latest figures from the Ministry of Planning and Budget. The deficit projection has increased from R$9.3 billion to R$14.5 billion due to an escalation in primary expenditures, which do not include interest expenses, according to the bimonthly revenue and expenditure evaluation report.

Despite this year’s primary result target being set at zero, the new fiscal framework permits the government a deficit margin of up to R$28.8 billion, approximately 0.25% of the Gross Domestic Product (GDP). This provides the government with considerable fiscal flexibility to achieve its target by year-end.

The first four months of this year saw a significant rise in federal revenues, allowing the government to authorize additional credit of R$15.8 billion. This increase in the spending ceiling will enable the government to release R$2.9 billion that was previously restricted in March and to address new obligatory expenditures, details of which are pending. Despite these adjustments, a budgetary shortfall of R$2.5 billion remains under the new credit framework.

However, this fiscal room does not equate to surplus funds, cautioned Federal Budget Secretary Paulo Bijos. “We must stay vigilant [regarding spending],” he emphasized. Dario Durigan, the executive secretary of the Ministry of Finance, reassured that the additional credit would not compromise the government’s commitment to meeting the zero-deficit target for the year. “The activation of the framework is harmless in terms of our projections,” Mr. Durigan stated.

Despite the deteriorated primary deficit forecast, the deputy head of the Ministry of Finance expressed satisfaction with the financial outcomes of the early months of the year. “The foundation of the national fiscal policy is being reconstructed,” he stated. “What we are witnessing in the first four months aligns with our projections and the objectives we set forth in 2023,” he further explained, noting that the primary revenue projection had increased by R$16 billion.

This revision in revenue estimates includes a heightened projection for dividend receipts, spurred by the government’s strategy to count on distributing 50% of Petrobras’s retained profits from 2023.

At Petrobras’s shareholder meeting at the end of April, the decision was made to distribute 50% of these extraordinary dividends, which amounted to R$21.9 billion. Of this, the federal government received R$6.4 billion, while the remaining half was retained in the company’s remuneration reserve account.

Treasury Secretary Rogério Ceron commented that the oil company’s announcement in April is considered sufficient assurance by the economic team that the second installment of dividends will be distributed within the year. He refuted any suggestions that the government had exerted pressure to secure these funds, which are crucial to achieving a zero-deficit target.

“There’s no element of pressure involved; we’ve proceeded with caution,” emphasized Secretary Ceron. He noted that any changes in the economic landscape would be reflected in subsequent bimonthly budget evaluation reports.

This year, the government’s projection for dividends and shareholdings increased significantly, from R$43.7 billion to R$57.9 billion. This rise includes almost R$13 billion in extraordinary dividends from Petrobras, R$400 million from the Brazilian Development Bank (BNDES), and additional funds from other state-owned enterprises.

On the expenditure front, projected spending has increased by R$24.4 billion, bringing the total to R$2.209 trillion. This includes a R$20.1 billion rise in mandatory expenditures and an additional R$4.3 billion in discretionary spending, which covers investments and operational costs of the public sector. Fortunately, this increase in spending has been offset by an additional R$15.8 billion in credit, which has expanded the spending limit within the framework of the new fiscal rules for this year. As a result, there was no need to impose any budgetary restrictions.

The bimonthly report also detailed a consolidated assessment of the primary financial impact of government interventions addressing the public calamity in Rio Grande do Sul. To date, these measures have resulted in a primary financial impact of R$12.9 billion. Notably, this figure is exempt from the calculations of both the primary result target and the constraints set by the new fiscal framework.

Included in these calculations is an overlooked impact of R$1.1 billion stemming from the Reconstruction Aid—a grant of R$5,100 allocated to families affected by the calamity. Executive Secretary Gustavo Guimarães of the Ministry of Planning and Budget assured that federal support to Rio Grande do Sul would “be provided without restraint” but with a “diligent regard for public finances,” which are “crucial for the economic growth of both Brazil and Rio Grande do Sul in particular.”

Secretary Guimarães further clarified that while federal aid does not factor into the calculations of primary and fiscal framework limits, the ministry is committed to full transparency regarding these expenditures, ensuring they are publicized and open to public scrutiny.

*Por Guilherme Pimenta, Jéssica Sant’Ana — Brasília

Source: Valor International

https://valorinternational.globo.com/