The Rupture of the Spending Cap

BRAZIL ECONOMICS - Report 26 Apr 2021 by Affonso Pastore, Cristina Pinotti and Paula Magalhães

The reflections of the second wave of the pandemic on the “underprivileged” population had already led to the approval of a new round of the Emergency Relief program, to the tune of R$ 44 billion, which will not be computed for the effect of the spending cap, and in the budget enacted into law on the 22nd, a new increase was approved of R$ 66 billion. Therefore, with artful legal makeup, the spending ceiling was “pierced” by R$ 110 billion, which is also the increase in the primary deficit in 2021, with inevitable reflections on the public debt. Because the consensus of the financial market was that the result could have been worse, soon after approval of the budget the real appreciated slightly and the slope of the long end of the yield curve declined a bit. However, both measures continue to reflect a huge fiscal risk. A certain sense of optimism exists in the financial market regarding satisfying the spending cap in 2022. However, this is not because of any signs the government has become more responsible, but rather that the spending cap in 2022 will be equal to that in 2021 adjusted by the accrued inflation in the 12 months through June, which should be above 7%. We start this Report by comparing the expenditures in Brazil with those of other countries and the reflections on the risk premiums. After that, we describe the relevant details of the changes in the final budget in relation to the bill sent to Congress, showing a new projection for the public debt for the coming years. We conclude with some comments on the future outlook.

Now read on...

Register to sample a report

Register
Sign-in
Forgot your password?
Copyright 2024 GlobalSource Partners. All rights reserved. This report is prepared for GlobalSource Partners’ clients and may not be redistributed, reproduced, stored in a retrieval system, retransmitted or disclosed, in whole or in part, or in any form or manner, without the express written consent of GlobalSource Partners. This report is distributed simultaneously to our website and other portals used by GlobalSource Partners. The information herein was obtained from various sources and is believed to be reliable but GlobalSource Partners does not warrant its completeness or accuracy. Neither GlobalSource Partners nor any Country Analyst, officer or employee accepts any liability whatsoever for any direct, indirect or consequential damages or losses rising from any use of this report or its contents.