Itaú BBA - Small primary surplus in April

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Small primary surplus in April

May 30, 2018

The surplus reflects the month’s favorable seasonality

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

The consolidated public sector posted a primary surplus of R$ 2.9 billion in April, worse than our forecast (R$ 6.5 billion) and the market consensus (R$ 7.1 billion). Accumulated over 12 months, the consolidated primary deficit worsened from 1.6% to 1.8% of GDP. The central government, as published by the National Treasury, posted a surplus of R$ 7.2 billion (compared to our expectation of R$ 5.5 billion). The result included an anticipation of a payment of R$ 11 billion in judicial deposits (the so-called "precatórios"), which last year occurred in June. Regional and state governments posted a deficit of R$ 2.5 billion and a balanced result, compared to our expectation of a R$ 0.5 billion surplus and a R$ 0.2 billion deficit, respectively.

The recently announced reduction in the price of diesel has an estimated negative impact of about R$ 14 billion for the central government's primary result this year. This amount will likely be offset by an R$ 8 billion payroll tax increase approved by Congress, reductions in tax incentives and discretionary spending cuts. In general, the risk of noncompliance with the deficit target of R$ 159 billion (2.2% of GDP) for the central government increased, and may increase further, especially if economic activity surprises negatively. 

Gross general government debt reached 75.9% of GDP and net public sector debt stood at 51.9% of GDP in April. Despite still negative annual primary results, the return of R$ 130 billion from the BNDES to the National Treasury, the improvement in economic growth and the reduction of real interest rates will lead gross debt to grow more moderately as a proportion of GDP in 2018. However, without reforms, such as the pension reform, fiscal results will resume a deteriorating trend from 2019 onwards.

Pedro Schneider
 

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



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