Brazil’s State-Owned Companies’ Deficit Reaches Record High

Brazil’s state-owned enterprises have amassed a deficit of R$9.108 billion ($1.47 billion) from January to November 2024. This figure marks the highest level since the Central Bank of Brazil (BC) began tracking this data in 2002.

The deficit encompasses federal, state, and municipal companies, excluding Petrobras and financial institutions like Banco do Brasil and Caixa.

Federal enterprises contributed the largest share with a R$6.041 billion ($0.97 billion) deficit, a significant increase from the R$343 million deficit in the same period of 2023.

State-owned companies followed with a R$3.170 billion ($0.51 billion) deficit, up from R$2.617 billion ($0.42 billion) in 2023. Municipal enterprises, however, showed a surplus of R$103 million, improving from a R$251 million deficit in the previous year.

The Ministry of Management and Innovation in Public Services (MGI) argues that the deficit alone does not provide a complete picture of these companies’ financial health.

Balancing Investments and Fiscal Risks

The MGI points out that 10 out of 13 companies included in the BC’s fiscal statistics reported accounting profits. They attribute the current deficits largely to increased investments in business expansion and modernization.

However, economist Tiago Sbardelotto from XP warns of potential risks to public accounts. He notes that if negative results persist, these companies might need to return to the federal fiscal budget.

This scenario could create additional pressure on government finances in the future. The BC calculates these statistics using the “below the line” method, which considers financing sources.

This approach examines the assets and liabilities of state-owned companies to determine net debt and its changes over time. Factors such as reduced cash due to investments can contribute to increased debt.

While the deficit of state-owned enterprises does not directly impact the fiscal target set by the new fiscal framework, it remains a significant indicator of their financial performance.

The situation underscores the need for careful monitoring and management of these companies to ensure their long-term sustainability and minimize potential risks to public finances.

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