Itaú BBA - Primary deficit of 12.7 billion reais in June

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Primary deficit of 12.7 billion reais in June

July 29, 2019

Reforms are essential to fiscal rebalancing


For the version with all charts and tables, please open the attached pdf file
 

• The consolidated public sector posted a primary deficit of 12.7 billion reais in June, slightly disappointing our forecast and market consensus (-11.6 billion and -11.1 billion, respectively). The central government experienced a deficit of 11.5 billion reais under the National Treasury’s methodology (gap between revenues and expenses), which was better than our 13.0 billion estimate thanks to lower discretionary expenses. Under the Central Bank’s methodology (contemplating just the change in the central government’s net debt), the deficit stood at 12.2 billion reais, while we expected -11.6 billion. This distortion between the two metrics is not uncommon in monthly figures but tends to vanish by year-end. Regional governments posted a deficit of 0.1 billion reais and state-owned companies showed a deficit of 0.4 billion reais, while we anticipated zero readings for both. The consolidated primary deficit over 12 months remained at 1.4% of GDP. In our view, meeting the public sector’s annual primary deficit target of 132 billion reais requires discipline, but shouldn’t be so challenging, especially in case of a successful oil auction from the transfer-of-rights area (‘cessão onerosa’), expected in November, which could improve this year’s primary result by about 52 billion reais (0.7% of GDP).

• The public sector’s net debt widened to 55.2% of GDP in June from 54.7% in May, while the general government’s gross debt remained at 78.7% of GDP. Over 12 months, the nominal deficit excluding FX swap transactions retreated to 6.6% of GDP from 6.8%. A favorable fiscal scenario depends strictly on the approval of reforms, such as the pension reform, that signal a gradual return to primary surpluses that are compatible with structural stabilization in public debt.

 

Pedro Schneider 

 

For the version with all charts and tables, please open the attached pdf file
 



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