The First Package: “Much Ado About Nothing”.
Last week, measures were announced aiming to reduce the primary deficit in 2023 (summarized in Table 1). The largest part of the adjustment falls on the revenue side, based on revenues’ reestimation and increase, along with some temporary spending cuts. However, given the nature of Brazil’s fiscal problem, interventions are necessary involving permanent spending and revenues.
The announced measures will do nothing to resolve the problem of the sustainability of the debt over the long run, which continues to depend on a new fiscal framework and reforms. Should all the measures announced be implemented and all the estimates achieved, the primary result would shift from a deficit of 2.2% of GDP to a surplus of 0.1%. But this is an extremely optimistic result, as acknowledged by the Finance Minister himself, who admitted difficulties of approval and implementation. In the final analysis, there is much wishful thinking and little reality regarding revenues, as well as excess confidence in the effects of placing expenditures on contingency, since the measures taken at the end of 2022 greatly increased the primary deficit and spending cap, besides the difficulty imposed by the budget now in effect. In other words, the measures announced will almost certainly fall short of achieving a primary surplus by the end of 2023, as the new government would have it believed. The most probable outcome is another deficit, reversing the recent behavior of the debt/GDP ratio.
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