Citi has worsened its projections for Brazil’s public debt due to fiscal easing measures planned by the elected government of Luiz Inácio Lula da Silva, even though the US bank expects that the Pec do Quero – which seeks to exclude expenses from the spending cap — is diluted during its course in Congress.
“We worsened our fiscal projections for the following years, with the public debt reaching 89% of GDP at the end of the Lula government”, said Citi in a report this Friday.
Under the bank’s new scenario, the Brazilian government will present a primary deficit of 1.6% of GDP in 2023, compared to a primary result close to 0.0% of GDP forecast for this year, while the public debt should exceed 75.8%. % of GDP in 2022 to 81.0% of GDP next year.
Citi’s projections came after the elected government presented this week the draft of the Transition PEC, whose text included a proposal to exceptionalize 175 billion reais from the spending ceiling for the payment of Bolsa Família for an indefinite period.
“We expect the size and duration (of the PEC) to be diluted during the negotiations (in Congress)” in response to very adverse reactions from the market and leading Brazilian economists, Citi said in the report. However, “as there are other measures that Lula would try to approve in the following years, the fiscal risks would remain”, warned the bank.
Among these measures, Citi highlighted a possible attempt by Lula to increase the salaries of civil servants at some point in his term, as well as chances that the new government will seek to maintain tax cuts promoted this year by the administration of President Jair Bolsonaro.
Under the US creditor’s basic scenario, Lula will be able to approve a PEC that would exclude 150 billion reais (1.5% of GDP) from the spending ceiling in 2023. “This would not be financed, directly impacting fiscal accounts,” he estimated. the Citi.
“From 2024, we assume that the size of the flexibility (extra-ceiling public spending) will decrease by 50 billion reais per year. In other words, we would have an extra public spending of 100 billion in 2024, 50 billion in 2025 and no easing in 2026 (in compliance with the spending cap)”, predicted Citi.
Source: CNN Brasil
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