Campos Neto says the government may have to make additional reforms to reduce spending

The president of the Central Bank, Roberto Campos Neto, highlighted this Monday (2) the importance of “additional reforms” to reduce structural public spending in Brazil. He stated that the government will face challenges in achieving fiscal targets by 2026 and that the financial market is aware of this situation.

“Perhaps additional reforms could play this role of cutting expenses in a more structural way, but it is an equation that we need to address in a more long-term structural way”, he declared during an event held by the Brazilian Foreign Exchange Association (Abracam), in a record of the Power 360.

Campos Neto recognized the difficulty of this effort due to the lack of records of structural spending cuts in the country in the last 15 to 20 years. He highlighted that previously adopted public expenditure reductions were generally “cyclical” and often reversed later.

The BC president praised the fiscal framework as a tool to adjust public accounts in the medium and long term, but emphasized the need for the government to demonstrate its commitment to achieving the promised fiscal objectives.

“We need to observe the projects that are in Congress and need to be passed. Because it brings additional revenue and stabilizes [as contas]. Ultimately, what we look at in the medium and long term is debt stability,” she added.

He noted that projects being processed in the National Congress can generate additional revenue and stabilize public accounts. However, Campos Neto highlighted that the government will have to make a significant effort in revenue to meet the target of zeroing the primary deficit in 2023, indicating the need for an increase in revenue.

Next year, he says, revenue will need to increase 0.5% of GDP (Gross Domestic Product) to reach the estimated primary result commitment due to the growth in expenses above inflation – 9.2% in 2023 according to the IPCA (Broad National Consumer Price Index). It is estimated that, in 2024, the real increase in spending will be 3.3%, “well above” the average for developed and emerging countries.

The BC president also highlighted the “relatively good” performance of the real in 2023 and mentioned the negative consequences of maintaining negative real interest rates in recent years, especially in the face of persistent and high inflation. He emphasized that Brazil faces challenges due to “the rigidity of the Budget and how this influences risk premiums (future interest expectations)”.