The improvement in Brazil’s financial situation has already led to part of the market expecting that central government accounts (which include the National Treasury, Social Security and the Central Bank) will be closed in the dark this year. If confirmed, It will be the first positive result since 2013.
The most positive scenario is evident in the Prisma Fiscal report, which is prepared by the Ministry of Economy on a monthly basis based on analyst expectations. In the August survey, the last one published, the forecast for this year’s initial result was a surplus of R$4.6 billion – in January, it was a deficit of R$88.7 billion.
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But what analysts are saying is that the expected positive outcome for 2022 may only be one-time.. For 2023, the beginning of the next government, financial institutions expect a 30 billion Brazilian reais leaked.
Luciano Sobral says: “For 2023, the (public accounts) scenario looks much more difficult. We have a much worse performance forecast for GDP. In 2022, the country should grow by 2%, but next year, it should advance only 0.5%. , chief economist at Neo Investimentos. “But more important than the number is the trend. There is an exhaustion of what has caused the growth (in revenue) this year.”
In 2022, the public accounts were aided, above all, by the collection of records. In the first semester, in inflation-adjusted values, they totaled R$1.1 trillion, which is a real 11% increase over the same period last year. It was the best result since 1995, when the National Treasury Historical Series began.
The government was able to raise more due to a combination of three factors. are they:
- economic recovery With the post-pandemic reopening and the outlook for activity improving. At the start of the year, economists predicted that gross domestic product (GDP) would practically be stagnant this year. Now, they expect a 2% rise;
- Advance commodity prices on the international scene. Brazil is a major exporter of basic products, such as soybeans and iron ore, and it benefits every time the prices of these items rise on the international market; And the
- inflation. The value of the products increases and, accordingly, the government collects more, since most taxes are collected as a percentage of the amount paid.
Tax collection hits record high for June
On Wednesday (17), the Independent Financial Institution (IFI) released a report raising the risks of a central government primary surplus this year. The body linked to the Federal Senate began projecting a surplus of R$27 billion – more optimistic than the Prisma Ministry of Economy surplus – compared to the previous estimate of a shortfall of R$40.9 billion.
“Economic activity is quite resilient. In the second quarter, the result came surprisingly higher, and we even revised our GDP growth forecast for this year from 1.4% to 2%,” says Daniel Corrie, CEO of the International Finance Corporation. He adds: “There is a possibility to anticipate earnings, which could make this result more positive. This is not yet in our account.”
At the end of July, the Economy Ministry’s Special Secretary for Treasury and Budget, Esteves Colnago, said the department had asked SOEs to consider paying more dividends to the government in 2022 to offset additional expenditures created in this election year.
Next year, the loss of breath of the factors that made the country gather more in 2022 will send analysts back to the project’s public accounts in the red. According to them, in addition to low economic growth, there should be a decrease in commodity prices and low inflation.
“There is certainly a situational component[in improving collection]that will dissipate and relate to commodity price volatility and the impact of inflation on collection,” Corrie says.
There are also a number of doubts about the future of the measures taken by the government this year – whether or not they should continue into 2023.
On the expense side, the greatest uncertainty relates to Auxelio Brazil. According to the original proposal, R$600 would be paid until the end of this year, but both Luis Inacio Lula da Silva (PT) and Jair Bolsonaro (PL) – leaders in vote intent polls – have already indicated that they should keep the amount.
For next year, for example, IFI still estimates a slight surplus, but this figure must be revised if the new Auxílio Brasil is to be maintained.
On the revenue side, Jair Bolsonaro’s government has promoted a series of tax cuts – some permanent, such as the Industrial Products Tax (IPI) and the tax on credit, exchange and insurance operations or related to securities or securities (IOF), and others temporary, such as the PIS and Cofins cuts on fuel.
However, Bolsonaro said last Wednesday that the government is considering including in the draft 2023 budget the extension of tax benefits for fuels.
In other words, in practice, the next government’s first year is heading towards a picture of increasing expenditures and declining revenues.
Sobral, of Neo Investimentos, says, “We are increasing spending and eliminating the country’s ability to collect through these tax cuts. It’s kind of counterproductive if you’re serious about the idea of running a surplus later.”
Understand the financial challenges that Brazil will face in 2023
Achieving a strong primary surplus is important for the country to be able to control its public debt. Today, according to analysts, Brazil has a high indebtedness to an economy that is considered a nascent.
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