Thought September 01, 2021 / 03:42 am UTC

Brazil 2022 Budget: More Questions than Answers

By Priscila Robledo

The government presented the 2022 budget on Tuesday. While the target for a small primary deficit is in itself good news, there are some caveats: the key macro assumptions look optimistic, and the Budget has unresolved issues that keep fiscal jitters alive.

The government expects to reduce the primary deficit to 0.5% of GDP, which is lower than the government’s estimate for 2021 primary deficit, at 1.8% of GDP, and also lower than the 1.9% of GDP limit established in the law that provides the guidelines for preparing and executing the budget. In this context, the government projects a marginal reduction in the gross debt to GDP ratio, from 81.2% in 2021 to 79.8% in 2022. In 2020 this ratio was 88.8%. 

Revenues from privatizations were not included in the Budget, which the government characterizes as a conservative move. To comply with the golden rule (which prevents an increase in public indebtedness for the payment of current expenses), the government will ask Congress to authorize that BRL105.4bn ($20.5bn) are covered through debt issuance. This number is the lowest since 2019.

While the target for a small primary deficit is in itself good news, there are some caveats. 

The key macroeconomic assumptions are optimistic, in our opinion. The government expects a 2.5% GDP growth in 2022, which is lower than the market consensus and our forecast, at 2.0% and 1.8%, respectively. The same applies to 2022 inflation, which the government estimates at 3.5%, lower than the market consensus and our expectation, both around 4.0%.

Moreover, while the bill includes the payment of court orders “precatorios” (because the government couldn’t yet find a solution to reduce the burden in 2022), the bill projects the same level of resources as in 2021 for the “Bolsa Familia” social program, which means that the revamped program that the government is pushing to implement has not yet been considered in the Budget (because the government has not resolved how to pay for it). In other words, the Budget has unresolved issues that keep fiscal jitters alive. We should get a clearer picture of these still-unresolved issues over the rest of the year. 

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Analyst Certification
I, Priscila Robledo, the lead analyst certify that the views expressed herein are mine and are clear, fair and not misleading at the time of publication. They have not been influenced by any relationship, either a personal relationship of mine or a relationship of the firm, to any entity described or referred to herein nor to any client of Continuum Economics nor has any inducement been received in relation to those views. I further certify that in the preparation and publication of this report I have at all times followed all relevant Continuum Economics compliance protocols including those reasonably seeking to prevent the receipt or misuse of material non-public information.