Weak economy and ceiling dribble will increase government deficit in 2022, says IFI

The IFI (Independent Fiscal Institution) projects a worsening in the central government’s primary deficit in 2022.

The 2021 result should be negative by R$ 38.2 billion, the best result since 2014, according to information collected by the IFI on the Siga Brasil Portal, of the Federal Senate. But for 2022, the institution projects a deficit of BRL 106.2 billion, above the BRL 79.4 billion foreseen in the Budget approved by Congress.

The IFI also estimates that the total expenditure on Auxílio Brasil for 2022 (R$89.1 billion) will be practically equal to the expenditure in 2021 with Bolsa Família, Auxílio Emergencial and Auxílio Brasil itself at the end of the year (R$90 billion).

The figures are part of the IFI’s Fiscal Monitoring Report for January, released this Wednesday (19).

According to the IFI, two factors explain this increase. The first is the increase in expenses made possible by changes in the spending ceiling. The second, more moderate revenue growth, due to the loss of momentum in economic activity and a decline in the terms of trade ratio—the relationship between a country’s export prices and import prices.

The approval of the PEC of Precatórios generated a total fiscal space of R$ 112.6 billion in the 2022 spending ceiling. Of this amount, R$ 54.6 billion are destined for Auxílio Brasil (which already had another R$ 34.7 billion forecast), R$ 27.5 billion for Social Security and R$ 16.5 billion for amendments by the rapporteur, among other expenses.

Furthermore, as shown by leaf, inflation at the end of 2021 was below the budget forecast, raising the ceiling by another BRL 1.8 billion, a figure also highlighted in the IFI report.

“The main risk associated with this scenario is the creation or expansion of new permanent primary expenses, such as the readjustment to the civil service currently under discussion”, says the IFI.

The IFI highlights that almost all the main groups of expenditures registered a decline throughout 2021, considering data up to November. Expenditure on social security benefits under the general social security system fell by 1.1%, discounting inflation. Personnel expenses fell by 5.1% in real terms. Discretionary spending, which includes investments and maintenance of the public machine, dropped 0.5%.