Brazil posted a fiscal surplus in January. But it’s not enough

Photo: Antonio Salaverry/Shutterstock

Brazil’s central government posted a surplus of BRL 81.3 billion (USD 16.47 billion) in January, according to data released today by the Central Bank. Although it uses a different methodology than the National Treasury, this is what the federal administration takes into account when setting its fiscal targets.

The record revenue registered for the month had everything to do with this, but it was made up of atypical events — such as tax revenues from investment funds used by the super-rich, after the government created new taxes on these funds last year — which are unlikely to be repeated.

In the 12 months ending in January, Brazil’s entire public sector (federal, state, municipal governments, and state-owned companies) posted a primary deficit of BRL 246 billion, just 0.04 percentage points lower than a year earlier and equivalent to 2.25 percent of the country’s GDP. Data from the National Treasury released at the end of February also brought worrying results, with a 12-month primary deficit through January of BRL 234.9 billion, or 2.1 percent of GDP.

At this rate, Finance Minister Fernando Haddad’s zero-deficit goal would not be met, even with a tolerance band of 0.25 percent.

Mr Haddad’s target depends largely on revenue growth, but his team has struggled to convince members of the government and Congress to support more austere policies that would contribute to this goal.

At the same time, President Luiz Inácio Lula da Silva has stepped up his social agenda. As a result, also in January, the country’s gross public debt rose to BRL 8.2 trillion — 75 percent of GDP, up 3.65 percentage points from a year earlier.

If the target proves impossible to meet, the government will face a tough choice: either get Congress to move the targets, undermining investor confidence in the process, or face sanctions next year, which would mean more drastic spending cuts.

Last month, the Independent Fiscal Institution (IFI), a public accounts oversight body that operates under the auspices of the Senate, published a report predicting that the government will miss its fiscal target this year, with gross public debt reaching 77.7 percent of GDP in 2024 and 80.2 percent in 2025.

Fabiane Ziolla Menezes

Former editor-in-chief of LABS (Latin America Business Stories), Fabiane has more than 15 years of experience reporting on business, finance, innovation, and cities in Brazil. The latter recently took her back to the classroom and made her a Master in Urban Management from PUCPR. At TBR, she keeps an eye on economic policy, game-changing businesses, and people driving innovation in Latin America.