Increase of 8.9% in revenue aids performance; secretary highlights challenges for 2025
01/31/2025
The Brazilian federal government met its primary budget target for last year, thanks to both increased revenue collection and reduced expenditures. However, National Treasury Secretary Rogério Ceron emphasized the necessity for the federal government to improve the primary balance by 2025. He also noted that recent changes in both external and domestic scenarios might “require more effort on our part” to balance public finances.
The central government ended last year with a primary deficit of R$44 billion, equivalent to 0.36% of GDP, according to the National Treasury Secretariat (STN). Excluding expenditures not considered in the target calculation, such as spending to combat the effects of floods in Rio Grande do Sul, the deficit was R$11 billion, or 0.09% of GDP. The target for 2024 was a zero deficit, with a tolerance range of 0.25 percentage points of GDP, either above or below, or approximately R$28.8 billion.
Earlier this month, Finance Minister Fernando Haddad stated that the central government would meet the target, forecasting a deficit of about 0.1% of GDP. This Friday (31), the consolidated public sector results calculated by the Central Bank, covering the federal government, states, municipalities, and non-financial state-owned enterprises, except Petrobras and Eletrobras, will be released.
The Central Bank figures are also expected to confirm that the nominal deficit remains at a concerning level, around 8% of GDP, ranking among the highest globally. Unlike the primary result, this figure includes interest payments on public debt and is closely monitored by analysts as it determines the country’s debt dynamics. For this year, the nominal deficit is expected to range between 8.5% and 9% of GDP.
According to Thursday’s Treasury data, the 2024 outcome was influenced by a real growth of 8.9% in net revenue. This increase was driven by both tax collections managed by the Revenue Service, which rose by 12.5%, and non-managed collections, which grew by 3.6%. In the latter case, revenues from participations and dividends, particularly those from the National Bank for Economic and Social Development (BNDES), which paid R$18.7 billion more than the previous year, played a significant role.
On the expenditure side, there was a 0.7% decline, mainly due to a R$39.8 billion reduction in spending on judicial rulings and writs of payment. However, mandatory expenses such as the Continuous Cash Benefit (BPC) and flow control continued to rise, with increases of R$14.7 billion and R$16.4 billion, respectively.
In a press conference detailing the figures, Mr. Ceron highlighted that the 2024 primary result was the second-best of the last decade, stating that “it is undeniable that the [fiscal] recovery process has been intense” over the past two years.
“The first year of the fiscal framework was extremely satisfactory,” he remarked, referring to 2024.
However, he acknowledged that “we need to improve” compared to last year, indicating that a reduction from the 0.36% deficit recorded in 2024 would signify improvement. The target for this year also aims for a zero deficit, with a tolerance of 0.25 percentage points.
Mr. Ceron also mentioned that given recent changes in the economic landscape, it might be necessary to reopen “the debate” on new measures to adjust public accounts. On the international front, he cited the Federal Reserve’s decision to “pause monetary easing.” On Wednesday (29), the Fed maintained the federal funds rate at a range of 4.25% to 4.5% annually.
The Treasury Secretary also identified Brazil’s interest rate as a source of fiscal pressure. Since mid-December, the Central Bank has raised the Selic rate by 200 basis points to 13.25% per year and signaled another one-point increase for the March meeting. According to Mr. Ceron, these changes suggest that “fiscal challenges may be intensified.”
Mr. Ceron also addressed President Luiz Inácio Lula da Silva’s statement that he would only implement new fiscal measures if necessary. According to the secretary, this was a “positive signal” confirming that the government will do what is required to achieve fiscal balance, while also reflecting “a legitimate concern [of the president] to preserve public policies” for the most vulnerable population.
The secretary dismissed the possibility of the Brazilian economy being in a fiscal dominance scenario, which occurs when public debt is so high that interest rate hikes could have the opposite effect on inflation, further pressuring price trajectories.
Nonetheless, Mr. Ceron stated, “we need to collaborate” to limit the Selic rate hike cycle. “The sooner we can provide correct signals, the shorter the cycle will be,” he added.
*By Estevão Taiar, Guilherme Pimenta e Ruan Amorim — Brasília
Source: Valor International