Treasury sees surplus enough to drop public debt by the end of the decade

The country’s public accounts should come out of the red and register a surplus as of 2024, a result that will gain strength in the following years and put the public debt back on a downward trajectory until the end of the decade, the National Treasury projects.

The estimates were released by the agency in an unpublished document, which outlines a detailed overview of the situation of the country’s finances over a ten-year horizon. This data will be updated every six months.

The Secretary of the National Treasury, Paulo Valle, highlighted that the new Report on Fiscal Projections will be important to support the debate on public policies in the country, even at a time when different candidates for the Presidency of the Republic defend changes in fiscal rules – the main one the spending ceiling, which limits the advance of expenditures to inflation.

“We are an essential source of data, and our goal is to provide that data to generate debate,” said Valle this Wednesday (29). “The objective is that it really serves not only the debate in the election, when this type of data is even more observed, but permanently.”

In the secretary’s assessment, the scenarios outlined by the Treasury, based on technical assumptions, can “facilitate future choices” of policies. The document is the result of the work of a group of almost 20 technicians from the agency.

According to estimates, the general government’s gross debt should close this year at 78.3% of GDP (Gross Domestic Product), rise to 78.5% in 2023 and gradually fall to 69.9% of GDP in 2031 — a near level. to what was observed in 2016.

Net debt, which discounts assets such as international reserves, is expected to close the year at 59.9% of GDP and will continue to rise until 2027, but then begins a downward trajectory, reaching 60.9% of GDP in 2031.

Treasury calculations indicate the possibility of Brazil recording growing surpluses in its accounts. This year, the forecast is still negative, with a gap equivalent to 0.6% of GDP. But in 2024 the accounts would go back to the blue, with a surplus of 0.2% of GDP, after 10 years of successive holes, since 2014.

The result would continue to improve consistently until reaching 2.5% of GDP in 2031. The surplus is nothing more than a sign that the government collects more than it spends. This savings is used to pay interest on the public debt.

As important as the medium and long-term results, however, are the assumptions used by the National Treasury. The first of these is maintaining the current design of the spending ceiling until at least 2026.

From 2027, the body considers that the precatories (debts after a final court decision) will be paid in full again, reversing the installment approved in the PEC of the Precatórios.

In order to maintain a sustainable level of discretionary expenditures, which include investments and the cost of public machinery, the Treasury also adopts the premise that the expenditure ceiling will allow real expenditure growth (that is, above inflation) of 1. 5% per year from 2027.

“This is not a Treasury position on specific public policies,” said the Treasury’s Undersecretary for Strategic Planning for Fiscal Policy, David Athayde. According to him, the simulations demonstrate the importance of having a consistent and lasting fiscal rule, whatever it may be.

“Any discussion that may have about the expenditure ceiling is essential to have a medium and long term vision,” he said.

Valle also highlighted that the final balance of accounts in 2022 should not be so affected by the recent measures being processed in the National Congress to minimize the impact of the high fuel prices.

The PEC (proposed amendment to the Constitution) which provides for a state of emergency due to the prices of oil and oil products paved the way for BRL 38.7 billion in expenses with social benefits in an election year, all made outside the spending ceiling. The government also gave up another R$ 16.8 billion in revenues to exempt federal taxes on gasoline and ethanol by the end of the year.

The total cost of BRL 55.5 billion of the new package should be offset by the inflow of extraordinary revenues from the privatization of Eletrobras (BRL 26.6 billion) and additional dividends from Petrobras (around BRL 10 billion in the next quarter) and BNDES (R$ 18.8 billion referring to previous years).

The Treasury Undersecretary for Public Debt, Otávio Ladeira, stated that the new report broadens the horizon of the government’s fiscal analyses, currently restricted to a period of three years, as is usually contemplated in the LDO (Budget Directive Law) and in the LOA ( Annual Budget Law).

“When the analysis is limited to three years, while it is reasonable for some observations, for others it doesn’t help,” he said. He also stressed that the Treasury will have more freedom to “bring an interesting point or another” to foment the debate.

In the undersecretary’s assessment, one of the major contributions of the document is to show that, even with recent efforts to control the public debt, Brazil is still far from its peers. Emerging economies have a debt of around 64% of GDP.

Countries with investment grade, good-payer seal that gives access to a broader market and with lower interest costs, have an even lower level of public debt.

“It is not a discussion of sustainability, the debt [do Brasil] has been shown to be sustainable without so many concerns. The question is how relevant is the discussion of financing at more reasonable costs, and this is an eminently political discussion,” said Ladeira.