Requiem for the Fiscal Framework

BRAZIL ECONOMICS - Report 17 Apr 2024 by Alexandre Schwartsman, Cristina Pinotti, Paula Magalhães and Diego Brandao

The recently proposed Budget Directives Law (LDO) revealed, intentionally or not, the limits of the so-called New Fiscal Framework. This is not due to either of the primary result for 2024 (kept at the same level suggested by the bimonthly revision of March) or even the reduction of the primary surplus target for next year to zero, versus an initial promise of a positive balance of 0.5% of GDP.

The gist of the question – which reveals the inconsistencies in the current fiscal arrangement – is the performance of the other discretionary expenditures of the executive branch, irrespective of the greater or lesser faith attributed to the projections of federal mandatory expenses (not much faith in our case).

This may at first glance seem paradoxical. After all, even in God’s year of 2024, discretionary expenses, minus mandatory amendments, are budgeted at R$ 171 billion, 1.8% of GDP, corresponding to only 8% of the primary spending estimated for the year.

Now read on...

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