Collections and dividends helped October surplus, say economists

Record federal revenues in October and extraordinary revenues from privatizations and dividends from state-owned companies boosted the government’s primary result in the month, which reached a surplus of R$ 27.1 billion, considering the results of the federal and regional governments released this Wednesday ( 30) by the Central Bank.

According to specialists interviewed by CNN Brasil Business, however, the significant increase in expenses foreseen by the PEC of the Explosion should reverse the positive result from next year.

“In the accumulated result for the year, the primary surplus continues to surprise, with a result of 1.8% of GDP well above the target of -0.6% contained in the PLOA (Annual Budget Law Project)”, highlights the chief economist of the Inter, Rafaela Vitoria.

In the same month of the previous year, the result of the public sector had been a surplus of R$ 35.4 billion. Considering the last twelve months ended in October this year, the consolidated sector already registers a surplus of R$ 173.1 billion, equivalent to 1.82% of GDP.

“(The result) reflects the positive surprise on the revenue side, with higher-than-expected GDP growth, extraordinary revenues from privatizations and dividends from state-owned companies, even with the approved exemptions”, he says.

According to Nicolas Borsoi, Chief Economist at Nova Futura Investimento, he also highlights the revenues with record collections for October, driven by taxes linked to corporate results, after a third quarter of strong economic activity. “On the expenses side, we had a big increase in aid to states and municipalities, probably related to compensation for fuel exemption”, he says.

The entire surplus is due to the result of the central government, of R$ 30.3 billion, while states and municipalities had a deficit of R$ 3.9 billion and state-owned companies, a slight positive balance of R$ 0.7 billion.

For Borsoi, a relevant part of this year’s growth is due to stimuli, but not only. The economist shows that the country had a first semester guided by the rapid and intense reopening of Brazilian activity.

“Furthermore, salary gains and an increase in the employed population resulted in income gains for families, which, added to the drop in inflation due to tax exemptions, results in a boost in consumption. Finally, high commodity prices strengthened exports, contributing to this year’s significant growth”.

In the view of Tiago Sbardelotto, an economist at XP, this scenario is being supported by stronger collections in the month of October and by the income from dividends that the Union is receiving from state-owned companies.

Felipe Sichel, chief economist at Modal, noted that the impact of expenses caused by the pandemic is practically zero. “The government reversed the losses on top of the advance of commodities and inflation. The price of oil, for example, boosted Petrobras’ dividends, reflecting on this improvement in collection”, he explains.

Rafaela Vitória highlights the role of the spending ceiling which, even after the approval of exceptional spending in the year, had a 2.3% increase in total expenses in real terms compared to 2022. “Economic growth cannot be attributed to stimuli tax, on the contrary, the reversal of deficit to surplus in 2021 did not impact activity”.

Vitória’s expectation is that the consolidated primary surplus will be closer to 1.4% in 2022, contributing to a further reduction of the public debt to 76%, the same level as the beginning of the government in 2019, despite the great impact of the pandemic.

Threat of the PEC of the Burst

Another highlight in the Central Bank report is in relation to Brazil’s gross public debt for the month of October, in which it recorded yet another reduction, mainly affected by the nominal growth of activity.

The indicator fell to 76.8% of GDP in October from 77.1% in September, the lowest level since February 2020 (75.3%), before the pandemic hit the country and the federal government spent record sums to combat it. there.

“Despite the improvement in the fiscal situation, the uncertainty brought about by the PEC of the Explosion and the absence of the debate on future fiscal rules continue to impact future interest rates, which reflect the risk of lack of control over public debt growth”, points out Vitória.

Borsoi projects that there are two major risks in relation to the Transition PEC: the direct effect of keeping consumption and the job market warm, resulting in greater inflationary persistence. According to him, this would require the Copom to adopt a more conservative stance in conducting monetary policy, either keeping the Selic high for a longer time or resuming the cycle of hikes in the Selic rate in 2023.

“Another risk of the approval of the PEC would lead to a worsening in the perception of fiscal risk by investors, which would raise local interest rates and depreciate the exchange rate, resulting in a worsening of the prospects for growth and domestic inflation”, he points out.

It is likely that the public sector will have a fiscal deficit in 2023, depending not only on the volume of expenditures approved by the Transition PEC, but also on the dynamics of government revenues, which should moderate in 2023 due to the drop in the results of state-owned companies, lower economic growth and more moderate commodity prices.

Modal’s chief economist predicts a fiscal deterioration in 2023, depending on the details of the approved PEC. “The proposal presented by the elected government to release expenses outside the spending ceiling has the potential to generate a significant upward trend in the country’s public debt, in addition to putting pressure on inflation and making the work of the Central Bank more difficult”, he observes.

The forecast by Cláudia Moreno, economist at C6 Bank, goes along the same lines: “Our expectation for next year is that the country will once again see net debt on an upward trajectory and resume negative primary results”.