Framework is tighter than it looks, says Galípolo – 05/30/2023 – Market

The executive secretary of the Ministry of Finance, Gabriel Galípolo, believes that the debate on the possibility of the new fiscal framework allowing for extra spending stems from a lack of understanding of the project on the part of some analysts.

“The truth is that the way the rule is, it is much tighter than it seems. The issue we are going to face is another, is whether we are willing to squeeze education, health, priority issues in our country”, he evaluated in a live promoted by the newspapers O Globo and Valor this Tuesday (30).

The debate revolves around a rule included in the framework that allows the government to increase spending up to the amount resulting from the difference between 70% of the real growth in revenue estimated in the second bimonthly assessment of revenues and expenditures, which takes place in May, and the limit of the real increase in expenses in the LOA (Annual Budget Law).

For Galípolo, the problem is of the opposite order, as “tight and challenging is this budget”.

“Our difficulty will be how challenging it will be from 2023 to 2024 to make the necessary repairs in several fundamental sectors”, he added.

In addition to Galípolo, the Minister of Planning, Simone Tebet (MDB), also participated in the event. For her, the fiscal framework is a regime for controlling public spending and deals with the Lula government’s commitment to fiscal responsibility.

“Today, the way the project is, it would have to cut discretionary expenses around BRL 32 to BRL 40 billion because of the change made by the rapporteur”, evaluated Tebet. “Congress needs to know about this. If it is not possible to change one point or another, at least let it remain as it is because if it tightens further, it will even have to cut a parliamentary amendment,” he added.

“We have audacious but credible targets,” he added in reference to the government’s objective of zeroing out the primary deficit next year.

With the approval of the fiscal framework in the Senate, the government’s expectation is that the way will be opened for the Central Bank to start reducing interest rates.

“There is no justification in the second half, unless a new fact arises, not at least signaling a lower interest rate in the medium term, as for example already reducing by 0.25 pp in the Copom of August this year”, pointed out Tebet.

Earlier, Galípolo had already said that “since the disclosure of the framework, long-term interest rates have been falling, there is a projection of a drop in interest rates in the medium and short term, lower rates in market pricing”.

The executive secretary of the Ministry of Finance should soon start to participate in decisions on the direction of interest rates by the Central Bank. This is because he has already been nominated by President Lula (PT) for the position of director of monetary policy at the monetary authority. The nomination still needs to be approved by the Senate.