Brazil’s Public Accounts Show a R$12.7 Billion Deficit in June

RIO DE JANEIRO, BRAZIL – The combined public sector, consisting of the federal government, states and the municipalities, recorded a primary deficit of R$12.706 billion (US$3.177 billion) in June. The negative result in June 2018 was higher: R$13.491 billion. Last month’s result is the best recorded for the month since 2016 when there was a primary deficit of R$10.061 billion. The data is from the Central Bank.

The primary result is made up of revenues minus expenses, without considering interest charges.

Last month, the central government (Social Welfare, Central Bank, and Federal Treasury) was the main contributor to the negative balance, with a primary deficit of R$12.212 billion. The state governments registered a surplus (R$87 million), and the municipal governments recorded a deficit of R$143 million.

Federal state-owned, state and municipal companies, excluding those of the Petrobras and Eletrobras groups, registered a primary deficit of R$439 million last month.

The public sector recorded a primary deficit of R$5.740 billion in the first half of the year, against R$14.424 billion over the same period in 2018. This was the best result for the period since 2015, when a primary surplus of R$16.224 billion was recorded.

The head of the Central Bank’s statistics department, Fernando Rocha, pointed out that, of this improvement of R$8.7 billion in the primary result for the first half compared to the same period in 2018, R$4 billion came from the central government. “The other improvements were due to regional governments [states and municipalities]. Regional governments have resumed the performance achieved in 2017,” he said.

Regarding the central government, “there is virtual stability of net revenues in the first half of the year, while expenditures contracted by 1.4 percent in real terms,” according to Rocha.

Rocha added that the primary result tends to be more favorable from January to June than in the second half of the year. This is because there are more revenues in the first semester, such as income tax, while from July to December there is an increase in expenses, such as the payment of the 13th salary bonus to pensioners.

In the 12 months ended in June, the primary deficit stood at R$99.574 billion, representing 1.42 percent of Gross Domestic Product (GDP).

The target for the combined public sector is a primary deficit of R$132 billion this year.

Interest expenses

Interest expenses stood at R$17.396 billion in June, against R$44.450 billion in the same month in 2018. According to the Central Bank, this reduction is the result of its gains on the sale of U.S. dollars in the futures market (exchange swap), in the amount of R$9 billion.

These results are transferred as revenue to the interest account when there are gains, and as expenses when there are losses. In June 2018, there were losses on swaps totaling R$7.1 billion. Another contributing factor was the “more benign evolution” of inflation, which corrects public indebtedness.

According to Rocha, this reduction in interest expense last month is incidental. “This June result is not the trend,” he said. This is because swaps do not always yield gains.

In addition, inflation was lower in June 2019 compared to the same month in 2018, as prices increased that month as a result of the truckers’ strike, which was not the case this year.

In the first half of the year, interest expense totaled R$181.112 billion, compared to R$202.976 billion from January to June last year.

In June, the nominal deficit, comprising the primary result and interest rates, stood at R$30.102 billion, while in June 2018, it stood at R$57.941 billion.

In the first six months of the year, the nominal deficit totaled R$186.852 billion, against R$217.4 billion over the same period.

Public debt

The net public sector debt (balance between total federal, state and municipal government credits and debits) totaled R$3.859 trillion in June, corresponding to 55.2 percent of GDP, an increase over May when this ratio was 54.7 percent of the GDP.

Last month, the gross debt — which includes only the liabilities of federal, state, and municipal governments — amounted to R$5.498 trillion. This balance corresponded to 78.7 percent of GDP, stable when compared to May.