RIO DE JANEIRO, BRAZIL – The economic contraction caused by the pandemic of the novel coronavirus led the Central Government – Treasury, Central Bank, and Social Security – to close August with a primary deficit of R$96.096 billion (US$19 billion).
Despite being the worst performance recorded for the month since official records began in 1997, the result was better than the market projected.
Financial institutions researched by Prisma Fiscal, a publication by the Ministry of Economy with market analysts, estimated that the negative result would be R$98 billion last month. For the first time since April, the Central Government’s total revenues grew in the monthly comparison with 2019. In August, revenues grew by one percent above inflation over the same month last year.
The primary deficit represents the negative result in government’s accounts excluding interest on public debt. Between January and August, the Central Government’s negative result totaled R$601.283 billion, a record for the period. In the first eight months last year, the deficit totaled slightly over R$52 billion.
In the 12-month period ended in August, the primary deficit reached R$647.8 billion, the equivalent of 8.96 percent of the country’s Gross Domestic Product (GDP). For 2020, the Ministry of Economy projects a negative result of R$871 billion for the Central Government, the equivalent of 12.1 percent of Gross Domestic Product (GDP).
In terms of revenue growth, the National Treasury states that the increase observed in August is due to the partial reversal of some measures that deferred the collection of employer contributions to Social Security, the Social Integration Program (PIS), and the Social Security Financing Contribution (COFINS). At the start of the pandemic, the government allowed companies to defer the payment of several tax obligations to help employers’ cash flow.
When deducting the portion of the revenue transferred to the states and municipalities, the revenue increased even more. According to the National Treasury, net revenues rose 5.8 percent above inflation in August compared to the same month last year. However, this is due to the reduction of transfers to local governments due to the drop in shared taxes collection – Income Tax and Tax on Industrialized Products – in recent months.
Despite the August rebound, the Central Government’s total revenues accumulated a 15 percent drop between January and August, excluding inflation. The drop reflects the economic crisis caused by the novel coronavirus pandemic, which paralyzed production and consumption for a few weeks.
In addition to the drop in revenues, the increase in expenses with the measures taken to tackle the Covid-19 pandemic were the main culprits for the increase in the primary deficit. As a result of the state of public calamity passed by Congress in March, the Central Government is exempt from meeting the primary deficit target of R$124.1 billion this year.
According to Treasury figures, measures associated with the pandemic increased spending by R$93.1 billion last month. The main expense comes from the emergency aid, which totaled R$45.3 billion. Secondly, aid to states and municipalities, which used R$15.2 billion.
Despite the authorization to spend more, the Treasury appealed for the preservation of the federal spending ceiling, emphasizing that the provision represents the only fiscal anchor left in the 2020 Budget. According to the body, efforts to rebalance public accounts after the end of the pandemic must be resumed, otherwise, there will be damage to society and the economy.
“Thus, if before the crisis it was important to comply with the spending ceiling, the importance of compliance in the post-crisis period will be even greater. The ceiling represents a reduction in primary spending of about 2.5 points of GDP by 2026,” the Treasury emphasized in a statement.
Source: Agência Brasil