Current forecast is for a deficit of R$5.6bn at the end of the year, compared to an estimate of a primary deficit of up to R$3bn
11/14/2023
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Vilma Pinto — Foto: Wenderson Araujo/Valor
The National Treasury may have to offset the deficit of state-run companies this year, something that hasn’t happened since 2015. The Budgetary Guidelines Law (LDO) allows the companies to have a primary deficit of up to R$3 billion this year, but the government’s latest projection is that the deficit of state-run companies will reach R$5.6 billion, according to data included in the Revenue and Expenditure Assessment Report for July-August period.
This estimate, which considers the performance of 22 state-run companies that do not depend on federal funds, was calculated based on the July execution and the budget projections made by the companies from August to December, the government said in the report. The first time the government provided for compensation was in the July report for the May-June period. The new report for the September-October period, with any updates to that data, will not be released until next week.
The LDO allows for compensation between the targets set for the results of the central government and those of the state-run enterprises if any result falls outside the established ceiling. However, this has not been the case in recent years, as the state-run companies have achieved positive results, while the targets even allowed for negative results.
According to the Central Bank, in the last five years, the state-run companies had surpluses, except for 2020, when they closed with a deficit of R$614 million. However, in that year, the initial target was a deficit of R$3.8 billion. The target ended up being suspended later due to the pandemic.
This year, there may be a need for compensation, since the projected deficit is higher than the one authorized by the LDO, as the Ministry of Finance acknowledged in a report at the end of October. For the coming years, the Treasury said there is no expectation of compensation.
“Despite the current expectation that the National Treasury will have to compensate for the primary result of the federal state-run companies in 2023, there is no need for additional fiscal effort by the central government for the following years,” the Treasury said in the report. However, the Treasury points out that state-run companies depend on their performance to meet primary result expectations. “In this sense, changes in the economic scenario can change the results.”
Gabriel Leal de Barros, partner and chief economist at Ryo Asset, believes that the need for possible compensation from the federal government is due to “the financial unsustainability of several non-financial state-run companies, especially due to the high weight of personnel expenses.” The primary result of federal state-run companies does not include financial companies or Petrobras. “The compensation, although marginal for the federal government, is important because it signals a process of fiscal deterioration in the consolidated public sector.”
Vilma Pinto, director of the Senate’s Independent Fiscal Institution (IFI), said that if there is a real need for compensation and it becomes a practice, there could be some damage to the target system. “One consequence is a certain flexibilization of the instrument that is the primary result target system. The repetition of this action could affect the credibility of this fiscal rule.”
In the year to September, the deficit of state-run federal companies stands at R$263 million, according to data from the Central Bank. Ms. Pinto said that the difference between the government’s official projection (R$5.6 billion) and the partial result could be because the August and September data from state-run companies came in better than expected, or because the deficit is expected to worsen in the last quarter.
Robson Gonçalves, a professor at the business school Getulio Vargas Foundation (FGV), believes that the results of state-run companies are more related to the economic situation than to the change in the government’s profile. “The economy has been moving sideways, and since June the revenue projections have been frustrated. The state-run companies are having great difficulty in cutting costs, especially personnel costs, which are very tight,” he said.
Asked for comment, the Ministry of Management and Innovation in Public Services said that with the privatization of Eletrobras in 2022, the LDO for 2023 did not provide for an exception to Eletronuclear’s fiscal target, “as was done in the past for energy companies as a whole.” “The error was corrected in the PLDO for 2024,” the ministry said.
Eletronuclear was not privatized along with Eletrobras and remained a state-run company. According to the ministry, between 2018 and 2019, the federal government contributed about R$15 billion to the state-run company, which explains the surplus in that period.
Regarding the estimated R$5.6 billion deficit for 2023, which is well above the deficit calculated by the Central Bank for the year to September, the ministry said that the Secretariat for the Coordination and Management of State-run Enterprises is currently “consolidating the latest reprogramming proposal” for the budget of non-dependent state enterprises “to assess the need to maintain the compensation in the latest primary revenue and expenditure assessment report.” The Ministry of Planning and the National Treasury declined to comment.
*Por Jéssica Sant’Ana, Larissa Garcia — Brasília
Source: Valor International