Bolsonaro will end term with Brazil more indebted and spending bill for 2023

President Jair Bolsonaro (PL) will end his term leaving as a legacy a country more indebted than he found when he took office on January 1, 2019, and a stock of repressed expenses that will further boost the Brazilian debt indicator from of 2023.

During his administration, the Chief Executive had to open public coffers to face the Covid-19 pandemic, an unprecedented crisis that forced countries to pour money to help families and support economic activity.

But the current administration has also aborted some of the efforts that could speed up the adjustment process and help stabilize the fiscal framework.

Under the command of Paulo Guedes, the Ministry of Economy maintained a series of tax benefits and expanded exemptions, measures that drain government revenue and end up increasing the need to issue debt.

Bolsonaro, in turn, interdicted the expense review debate by saying that he would not “take from the poor to give to the very poor”. From then on, political and social pressures were converted into licenses to spend above the spending ceiling — a rule that limits expenditure growth to the variation of inflation.

At the end of 2018, the government’s gross debt stood at 75.3% of GDP (Gross Domestic Product), an already high level for emerging countries such as Brazil, which was reached after deficits accumulated since 2014, under Dilma Rousseff’s government (PT ).

The debt indicator even went down in 2019, but rose with the pandemic, reaching 88.6% in December 2020. The following year, it fell again with higher collection and the return of Treasury resources by BNDES (National Development Bank economic and social).

In July this year, the debt reached 77.6% of GDP. It should end 2022 at 78.6% of GDP, according to expectations collected in the Focus Bulletin. The value is higher than at the beginning of Bolsonaro’s term.

The same trajectory is observed in the net public sector debt, which discounts assets as international reserves. The indicator was at 52.8% of GDP at the end of 2018 and should end the year at 59% of GDP, according to market estimates.

In addition to being high, Brazilian debt has a non-negligible cost. Nominal interest paid by the federal government and the Central Bank in the 12 months through July reached 5.63% of GDP. It is more than four times the amount spent on Auxílio Brasil (1.2% of GDP).

When Guedes took over the Economy, there was an expectation among technicians that he would lead a major effort to reduce the debt more forcefully.

The minister arrived presenting credentials as a liberal and promising to bring the deficit to zero as early as 2019. Almost four years later, Guedes focused on defending one-off measures to bring down the debt, such as privatizations, and wasted the chance to submit a proposal for a 2023 Budget with primary surplus, something unprecedented since 2014.

Instead, he complied with the president’s wishes and kept BRL 80.2 billion in exemptions, of which BRL 52.9 billion correspond to the cut in federal taxes on diesel and gasoline, adopted in an election year after the soaring prices of fuel. fuels.

The economic team’s argument is that there is a structural improvement in revenues. On the outside, though, many experts are skeptical of the collection’s lasting vigor, as the boost comes from temporary factors such as inflation and commodity prices (which boost revenue from royalties and special participations).

The government itself was more conservative in the official projections and sent the budget piece predicting a deficit of R$ 63.7 billion next year.

The hole must be even greater because the 2023 Budget proposal excludes a series of expenses, such as the R$ 52.5 billion needed to pay the minimum Aid Brazil of R$ 600 – a commitment already signed by the four main candidates for the Presidency of the Republic. .

Other factors will contribute to putting the debt trajectory back on an upward path, such as lower growth in 2023, higher interest rates and lower inflation, which mitigates collection gains.

Economist Marcos Mendes, researcher at Insper and columnist for Sheetprojects that the additional bill will be R$ 124.6 billion, raising the deficit to R$ 188 billion (1.8% of GDP).

He warns that this result is very far from the surplus of at least 1% of GDP that would be needed to stabilize the public debt – this is based on optimistic assumptions of a 2.5% advance in the economy in 2023 and a real interest rate of 4% ( below that practiced today).

“If the hypothesis of temporary improvement [nas receitas] is to prevail, we are in an ambush. We don’t have fiscal peace of mind for the future”, said Mendes in a seminar at UnB (University of Brasília) last Friday (16).

“Even if the hypothesis of permanent improvement prevails, we are also not in a calm scenario because we have had a significant deterioration in the political economy”, he added, referring to the takeover of the Budget by Congress through the amendments.

Economist Manoel Pires, coordinator of the Observatory of Fiscal Policy at FGV (Fundação Getulio Vargas), estimates a greater impact of R$ 215 billion, as it includes less revenue from oil royalties.

Both emphasize that, unlike the 2018 elections (when the Social Security reform agenda marked the economic debate) or previous periods, there is a certain fatigue in the discussion of fiscal adjustment and reforms, especially in the current social context.

In this adverse scenario, the expected growth in debt is still “slow and controlled”, says Pires, and this has been enough to reassure the market. In the projections of the Focus Bulletin, gross debt reaches 87.9% of GDP in 2029, falling slowly in the following periods. Net debt, on the other hand, would rise continuously until reaching 70% of GDP in 2031.

But an expense explosion could bring turmoil. “It is important to have an understanding of what is reasonable to do [após as eleições]so as not to absorb all this impact at once”, says Pires.

Economist Julia Braga, a professor at UFF (Universidade Federal Fluminense), points out that a rise in debt is not a problem in the short term and should not affect the exchange rate or risk indices. “It is necessary to enable an increase in spending that is being demanded by society”, she says.

“In the longer term, it will depend a lot on the ability to have more vigorous economic growth so that the relationship between interest and growth is favorable”, she says, who recommends focusing on controlling the cost of debt. Expenditure planning and approval of tax reforms that reduce inequalities will be essential in this task, says Braga.

At the end of his term with a greater debt, Bolsonaro repeats Dilma, whose administration was marked by the deterioration of the accounts, and Michel Temer (MDB), who took over after the PT’s removal and inherited the delicate fiscal situation.

Lula reduced the indicator in his two terms, after the increase in the administration of Fernando Henrique Cardoso – when the debt rose after controlling inflation and the country’s emissions were even more pegged to the exchange rate.

The current scenario allows us to draw some parallels with the situation in 2002, evaluates Manoel Pires. That year, the uncertainty of the elections made the net debt jump to 60% of GDP, a level similar to today.

“The interest rate was very high, and this generated some kind of insecurity regarding debt control. After the new government gave the right signals, this dissipated”, he recalls.

For him, the correct signs expected for 2023 are still unclear. “One of the first things necessary is to solve the budget imbroglio, and from there to put together a fiscal strategy that can signal with rebalance. . Negative is discussing every year the size of the ceiling change”, he says.