BC President confirms positive bias for public accounts – 03/04/2024 – Adriana Fernandes

Roberto Campos Neto corroborates in the interview with Folha the positive bias for public accounts in 2024, which gained traction with the improvement in revenue in the first months of 2024.

The president of the BC considers that the government has all the conditions to deliver a smaller deficit for public accounts than that embedded in market prices.

In other words, a better result than the forecasts of financial market analysts, captured by the BC’s Focus survey, which indicate a deficit of between 0.7% and 0.8% of GDP. “I’m optimistic about what the market is thinking,” he says.

The BC’s finger pointing at fiscal risks and their impact on interest rate policy has always been a reason for criticism not only in the Lula government, but also in the Bolsonaro government.

Campos Neto was against the PEC dos Precatório, supported by Bolsonarists. He got into an ugly disagreement with the then Minister of Economy, Paulo Guedes, and received friendly fire at the time.

In the Lula 3 government, the BC’s warnings about fiscal risks, at the beginning of 2023, fueled the President of the Republic’s attacks on the BC’s interest policy — and on Campos Neto in particular.

Haddad —who had already presented a package of fiscal measures in February 2023 and the project for the new fiscal framework— reinforced that the Treasury was doing its part.

The minister demanded that the BC harmonize monetary and fiscal policies to press for the process of reducing the Selic rate. Interest relief only began in the second half of the year, in August.

Among banks, expectations for the fiscal framework also appear to have a more positive bias.

Febraban’s internal survey shows that, while 55% of participants estimate this year’s primary deficit at 0.8% of GDP, 39% already project a smaller deficit.

Higher GDP growth and an apparent underestimation of revenues with some of the measures adopted by the Treasury (especially taxation of exclusive funds and offshore funds belonging to the super-rich) would help the government to deliver a smaller deficit for the year, in the assessment of the Febraban survey.

Furthermore, the credit market shows signs of stabilization, after a long period of stabilization with spread, interest and default rates falling consistently.

The short-term fiscal bias improved because Minister Haddad managed to approve important measures to increase revenue, some of which were unthinkable a short time ago. An unpopular agenda that never got off the ground.

The good news is that revenues are coming in better than expected. The bad news is that most of these revenues will not be repeated in the coming years,

The positive bias for the fiscal sector will only continue if economic growth picks up consistently and the government and Congress face the agenda of measures that are politically prohibited, such as the review of spending — among them, the salary bonus, a way of correcting constitutional floors of Health and Education, and the increasing parliamentary amendments linked to revenue.

The salary adjustment negotiations led by Minister Esther Dweck (Management) deserve all the attention.

The irony is that the proposed 23% salary increase (2025 and 2026) for BC employees opened the door for other categories to ask for the same, including the granting of efficiency bonuses.

Depending on what comes out of these negotiations, the positive bias could change. With effects also on the definition of the fiscal target in the 2025 LDO.

Which just shows that holding back salary adjustments, without a clear and predictable correction policy, only postponed the problem.

It’s yet another harmful effect of postponed expenses. The bill always arrives. There was no silent administrative reform, as former minister Paulo Guedes preached at the time. Narrative that only those who wanted it bought.

The servers’ pressure cooker may burst.

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