Brazil’s March Deficit Narrows Yet Fails Analysts’ Expectations

In March 2024, Brazil’s central government reported a primary deficit of R$1.527 billion ($299.29 million).

Brazil’s primary deficit in March was an improvement from the previous year’s R$7.083 billion ($1.362 billion) deficit.

However, it fell short of analysts’ expectations, who had anticipated a R$1.522 billion ($298.42 million) surplus.

The accumulated primary deficit for the past year reached R$247.4 billion ($48.51 billion), approximately 2.2% of GDP.

This marked the best result for March since achieving a surplus in March 2021, which was also adjusted for inflation.

Net revenues saw an increase of R$12.6 billion ($2.47 billion), up 8.3% compared to the same month last year.

Meanwhile, total expenditures rose by R$6.8 billion ($1.33 billion), an increase of 4.3%.

For the quarter, this yielded a positive R$19.431 billion ($3.81 billion), though below the R$31.209 billion ($6.12 billion) from 2023.

Throughout 2023, Brazil contended with a significant deficit of R$230.535 billion ($45.21 billion), about 2.12% of GDP.

This amount was primarily due to R$92.4 billion ($18.12 billion) in December payments for court-ordered debts, or “precatórios.”

Excluding these exceptional costs, the annual deficit would have been considerably reduced, signaling potential fiscal progress.

The increasing cost of financing Brazil’s debt

Central Bank data indicates the increasing cost of financing Brazil’s debt.

In October 2020, when the nominal deficit first surpassed the R$1 trillion ($200 billion) mark, the basic interest rate was 2% per annum.

It currently stands at 10.75%. A significant portion of the debt is linked to the Selic rate, meaning higher interest rates increase the public sector’s financing effort.

The Gross Government Debt (GGD) was at ovver75% of the Gross Domestic Product (GDP), rising by 3.7 percentage points in one year.

In January, it reached its highest level since July 2022, amounting to R$8.2 trillion ($1.64 trillion).

The Independent Fiscal Institution (IFI) forecasts an uptick in gross debt to 77.7% of GDP in 2024, with expectations of further growth to 80.2% by 2025.

The burden of mounting interest payments, financed by accruing more debt since 2014, stresses the urgent need for fiscal discipline.

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