Government predicts bigger hole in 23 and block goes to R$ 3.2 billion – 07/21/2023 – Market

Despite the plan by President Luiz Inácio Lula da Silva (PT) and his Finance Minister, Fernando Haddad, to increase revenues and improve public accounts, the government will need to extend the blockade to R$ 3.2 billion in discretionary expenses –which include costing and investments-, after raising its deficit forecast this year.

According to the Revenue and Expenditure Assessment Report for the 3rd bimester, released this Friday (21) by the Ministry of Planning and Budget, the fiscal deficit estimated by the economic team is 145.4 billion, equivalent to 1.4% of GDP (Gross Domestic Product).

The new forecast represents an increase of R$ 9.2 billion in relation to the estimate released in May, which indicated a deficit of R$ 136.2 billion.

The negative result was driven by the increase of R$ 7.2 billion in the expenditure forecast in comparison with the May report.

The budgetary schedule of the economic team indicates an excess of BRL 3.2 billion in forecast expenses in relation to the limit established by the spending ceiling — a rule that is still in force. This indicates the need for the government to block the same amount in discretionary expenses – the details of the cut will be made at the end of the month. In May, the blockage was R$ 1.7 billion.

The new fiscal framework is still being discussed in the National Congress, and the new vote in the Chamber of Deputies is scheduled for August, on the return of the parliamentary recess.

The deterioration in the government’s fiscal framework occurs even after the Ministry of Finance raised its estimate for GDP growth this year, from 1.9% to 2.5% —which tends to contribute to an increase in the forecast for tax revenues.

The downward revision of the official inflation index, on the other hand, acts in the opposite direction by reducing the nominal collection value. According to the new parameters of the SPE (Secretariat for Economic Policy), the estimate for the 2023 IPCA dropped from 5.58% to 4.85%, close to the ceiling of the target for this year —which is 4.75%.

In the 2023 Budget, the fiscal target remains a primary deficit of BRL 238 billion (2.2% of GDP). The team led by Fernando Haddad (Finance), however, committed to deliver a deficit of 0.5% of GDP this year, with measures to recompose revenues and cut expenses.