The Minister of the Economy Paulo Guedes and President Jair Bolsonaro went to the hemicycle, where they delivered on Monday the deputy who created Auxílio Brasil (9). Photo: Marcos Correa / PR
The fiscal risk has returned. The proposal to reformulate the Bolsa Família and the presentation of the precatório’s PEC raised concerns about the future of public accounts and, consequently, increased uncertainties about the Brazilian economy – which were no longer rare, against the backdrop of accelerated rise in inflation and interest and the risk of energy rationing.
The tensions ended a period of relative calm on the public accounts front, which began at the end of April, with the late approval of the 2021 Budget, and was marked by the appreciation of the real against the dollar and the decline. of the risk perception of foreign investors.
The Independent Budgetary Institution (IFI) specifies that “the budgetary risk materializes as soon as the PEC is presented. The mandatory spending splitting affects the dynamics of the spending cap, in a general election context, leaving room for R $ 32.4 billion to R $ 47.4 billion in the rule for next year.
According to directors Felipe Salto and Daniel Couri, MP 1.061 / 2021 has already indicated one of the destinations in the space created by the development: Auxílio Brasil, a new set of social benefits created to replace the Bolsa Família program. However, they point out that the destination can also be used to fund Budget amendments, hasty scheduled spending, salary adjustments, and other ongoing spending contracts.
“All this based on a production of the accounting space by untimely modifications of the Constitution”, specify the specialists of the IFI.
They complete by specifying that the consequences will be very clear and will already materialize in asset prices:
the increase in the interest demanded by the market in transactions with government bonds, the increase in interest to cope with the effects on inflation of the greater perception of risk; and the average cost of new Treasury issues tends to increase, implying higher interest charges.
“The effect of a measure that advocates the creation of fiscal space, but to the detriment of the rules of the game, will cause relevant turbulence on market expectations. The gain that can be seen on the surface will quickly be replaced by the loss caused to the aggregate budgetary framework, via interest and public debt, ”they underline.
Analysts interviewed by Gazeta do Povo stress that the merits of Bolsa Família are not questioned, but rather the role of the spending ceiling. “Unorthodox ideas about the 2022 budget have started. The role of the spending cap is to encourage a reorganization of public spending and rethink the size of the state,” says Ativa Investimentos chief economist Étore Sanchez .
About Bolsa Família, Rico Investimentos Economic Manager Rachel de Sá says the program is positive and has been effective in reducing poverty. But, according to her, the problem is that spending was not prioritized. “Programs that did not prove to be effective were bundled together,” the economist explains of Auxílio Brasil’s design.
Country risk and rising dollar, inflation more under pressure
The effects of increased fiscal risk are already being felt. After approaching the level of R $ 4.90 at the end of June, the dollar returned to circulate in a range of R $ 5.20 to R $ 5.30. And since then, country risk, measured by the five-year CDS, has increased by 15%.
This peak may affect the economic recovery this year – forecasts at the moment are for growth above 5% – and complicates the scenario for next year, where weaker GDP expansion is projected, close to 2%.
Analysts point out that by changing the fiscal framework, the government is creating a vicious circle. There is more pressure on the dollar, just at a time when inflation over the past 12 months is hovering around 9%, according to the Brazilian Institute of Geography and Statistics (IBGE), and inflation projections for next year, according to BC’s Focus. the report has been in place for three weeks.
“The problem of fiscal risk ends up causing a misalignment of economic policy at a time of high inflation. It’s more or less like driving a car while pressing the accelerator and the brake, ”says Sanchez.
Veedha Investimentos chief economist Camila Abdelmalack points out that the biggest fiscal risk embodies a perception that comes from the political front: the government is unable to implement the main structural reforms for Brazil. “There is no environment for their approval.”
Another impact is greater difficulty in attracting long-term resources from abroad, which was already complicated shortly before the pandemic. In June, the net inflow of foreign resources into the productive sector – measured by direct investment in the country (IDP) – was only $ 174 million, the worst since September 2005, according to the Central Bank.
With this, the cumulative 12-month IDP balance fell to $ 46.6 billion, or 3.02% of GDP. In May, the balance was 51.6 billion reais, or 3.38% of GDP. In June 2020, 65.8 billion reais, or 3.98% of GDP.
The market sees the risk of a return to “creative accounting”
Another problem is that the space for further spending inside the cap is likely to shrink given the outlook for higher inflation in the second half of the year. The INPC, an index calculated by the Brazilian Institute of Geography and Statistics (IBGE) and which corrects compulsory spending, can rise to almost 7% per year. “With this, we have returned to speculation on the exclusion of expenditure from the ceiling or the payment of court decisions”, underline the economists of Banco Inter.
Itaú considers that “at a time when tax adjustments for the payment of court orders in 2022 are under discussion, it will be important to monitor the definition of expenditure with the new social program. [Bolsa Família], especially in light of the spending cap rules for next year, ”say banking analysts.
“There was noise around the spending cap, which raised further concerns. If this is difficult for the Brazilian investor to understand, imagine for the foreigner, ”explains Celson Plácido, investment director at Warren.
For Banco Inter analysts, the possibility of excluding spending from the ceiling or the payment in installments of court orders are measures that “refer to the dissatisfied experience of ‘creative accounting’ and fiscal pedaling of 2014. ceiling, it is an important anchor point of the current tax system, which reassures investors about the expectations of the debt trajectory, ”they say.
Placido specifies that this situation is added to the main weakness of the public accounts: they have closed in the red since 2014. For this year, we expect the primary deficit (negative result calculated before payment of interest on the debt ) close at 1, 9% of GDP, according to estimates compiled by the Central Bank.