Market expects change in the ‘zero deficit’ target and monitors government commitment to public accounts, says Galípolo

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The government has been discussing internally, since 2023, changing the target in the LDO that foresees zero deficit – that is, not increasing public debt to pay expenses. Decision has not yet been made. The director of Monetary Policy at the Central Bank, Gabriel Galípolo, stated this Friday (16) that the financial market is already expecting a change in the fiscal target set for the year 2024, of zero deficit – but, even so, it monitors attitudes government that demonstrate commitment to public accounts. Galípolo, who was already executive secretary of the Ministry of Finance under Fernando Haddad, participated in a live broadcast promoted by Bradesco Asset, in São Paulo. He was one of the first appointed by the Lula government to the board of directors of the Central Bank. “Receiving some market research, which we receive, we also see that there is a large majority of the market, an expectation of a change in target [fiscal de déficit zero fixada para 2024]. More than 90%”, said Galípolo. The possible change to the target of zero fiscal deficit, which appears in this year’s Budget Guidelines Law (LDO), has been discussed internally at government levels since the end of last year, with public clashes between the economic area and the political wing of the PT government. Last week, President Luiz Inácio Lula da Silva stated that there is a budget planned for this year and that, if possible, he will seek a “surplus” in the public accounts, that is, collecting more than spending. But he indicated that, if it is not viable, there will be no problems. “If we can create a zero surplus, great. If it doesn’t work, that’s great too”, declared Lula. A change in the target, to foresee a public deficit in 2024, would help the government to minimize spending cuts this year and, therefore, reduce the impact on investments in infrastructure, such as works on the new Growth Acceleration Program (PAC), in the middle of municipal elections year. Fiscal target for 2024 generates a lot of discussion within the government; Míriam comments According to the BC director, financial market projections are for a public deficit of around of 0.8% of the Gross Domestic Product (GDP) this year, a value above R$80 billion – far from the goal of closing the budget. He assessed that the impact of this fiscal deficit is already embedded in the analysts’ projections for other indicators, such as estimated inflation for this year – which, last week, was at 3.82% (above the central target of 3%, but below the ceiling of 4.5%). “And I I need to assume that there is coherence in the deficit expectation response with the other variables. I imagine that whoever responded to that survey responded deficit, responded exchange rate, responded terminal rate [de juros], responded inflation. So, somehow, one has to imagine that there is a coherence between those expectations. In a certain way, it is possible to say that the expectation of a deficit of around 0.8% is in the price. [nas contas em 2024]”, added Galípolo. According to the BC director, the financial market seems to be less concerned with the number itself, and more interested in the economic team’s indications about the commitment to fiscal balance. In other words: the interest is in the intentions, even that the target will not be met now in 2024. “It seems much more indicative of how the government’s commitment to fiscal balance can be perceived than actually a debate around the number, it seems to me, which makes interpretation even more difficult. Because it adds more subjectivity to the process, because it seems to depend a lot on, like behavior throughout the year, not only in this government but in any government, how attitudes will or will not reveal, to the market, a perception of commitment to the tax issue”, concluded Galípolo.

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