Brazil’s Primary Balance Turns Red on Weaker Treasury Surplus

CEIC Brazil Data Talk: Brazil's primary balances – a narrow definition comprising the excess of government revenue over government transfers and expenditures – along with the overall fiscal balance are among the key indicators used for evaluating the sustainability of Brazil's public debt. Brazil's central government balance has deteriorated recently, with the September 2013 primary balance showing a deficit of BRL10.47 billion, its worst outcome since December 2008. This translates to an overall central government deficit of BRL19.73 billion (excluding nominal interest), having widened from BRL6.00 billion during September 2012. The large primary deficit is attributable to both weakening treasury balances and relatively high social security expenditure during September 2013. Social security deficits, especially in urban areas, have tended to be larger during September since 2006 due to advance payments of year-end benefits disbursed during the period. This was further compounded this September by low treasury balances – amounting to just BRL1.32 billion, compared to BRL12.48 billion during September 2012 – which proved insufficient to counteract the higher deficits in the social security accounts. The Treasury has identified higher subsidies for the energy sector (to cover for increased costs of thermal plants as hydroelectric plants sees lower electricity production due to the dry season) as a contributing factor in its weaker treasury balances. This has been further exacerbated by the increase in allowances and unemployment insurance contained in the worker support fund (Fundo de Assistncia ao Trabalhador or FAT) and central government transfers to states and municipalities during the same period. Expenditures for allowances and unemployment insurance increased to BRL5.17 billion during the period from BRL3.2 billion during September 2012, while transfers to states and municipalities increased to BRL14.03 billion from BRL10.86 billion during September 2012. Statistics from the Central Bank of Brazil reveal that the September public sector primary surplus narrowed sharply to BRL74.1 billion (accumulated over the last 12 months), or 1.59% of Gross Domestic Product (GDP), from BRL84.74 billion (1.82% of GDP) during the previous month. Taking into account nominal interest, the public sector deficit rose to 3.33% of GDP, its third increase since July 2013; the deficit amounted to 2.83% of GDP in June 2013. However, notwithstanding the September 2013 primary deficit, the gross general government debt hardly changed; indeed it declined marginally to BRL2.75 trillion as of September 2013 owing to a reduction of foreign debt. This translates to a decline in gross government debt as a percentage of GDP to 58.75% as of September 2013, its second consecutive monthly decline from 59.42% in July 2013. Given the relatively seasonal impact of the primary deficit in September and the non-recurring nature of the increased central government expenses, the administration is confident that it would be able to reverse the deficit and achieve the federal government goal of 2.30% primary sector surplus for the fiscal year ending December 2013 (approximately BRL73 billion). The finance ministry has also attributed weak prior fiscal balances to tax reduction throughout 2012 to help boost economic activities though it anticipates that improving economic activity during the coming months will help increase profits and tax collections moving forward. By Bruno Vasconcelos Google+ Author Profile - CEIC Analyst Discuss this post and many other topics in our LinkedIn Group (you must be a LinkedIn member to participate). Request a Free Trial Subscription. Back to Blog
18th November 2013 Brazil’s Primary Balance Turns Red on Weaker Treasury Surplus

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