The accumulation of exceptions to the budgetary framework from 2024 to 2026 could result in a volume of 163.8 billion reais. For next year, if all forecasts outside the target are confirmed, the amount could reach 88.5 billion reais.
The framework was approved in 2023 to come into force from 2024. The objective of the public tool is to guide the control of public spending and move finances from deficit to surplus.
Deficit is when the government has more expenses than revenues; excess is when the opposite happens.
Exceptions to the framework initially included expenses that could not be planned and included in the budget, but their value increased over the years.
Next year, an exception of 88.5 billion reais is expected. Of this total, 10 billion reais concern the deficits of public companies. For the armed forces, 5 billion reais are planned, which will not be included in the accounts to determine the government’s budgetary result in light of the budgetary framework.
The 10 billion reais exception for public companies is associated with Correios’ serious financial crisis. Until September alone, the accumulated loss for the year amounted to 6 billion reais. Last Thursday (12/04), the Minister of Finance, Fernando Haddad, did not rule out a contribution from the National Treasury to the public company, provided that a restructuring plan is approved.
2024 and 2025
Based on the Primary Income and Expenditure Assessment Report (RARDP), prepared by the National Treasury, in 2025 they will be excluded from accounting to verify compliance with the budgetary target of 43.3 billion.
In 2024, according to the Independent Fiscal Institution, linked to the Senate, BRL 32 billion was excluded from the budgetary target. The majority of the amount was for extraordinary resources allocated to Rio Grande do Sul, as a form of support due to the calamity resulting from the rains and also as aid in the reconstruction of the state.
The budgetary objective of the framework
In 2025, the budgetary objective is zero deficit. However, there is a tolerance of 0.25% of gross domestic product (GDP) (31 billion reais) for more or less. Barring exceptions to the framework, the government expects a result in the lower limit, i.e. a deficit of up to 31 billion for this year.
The budget target for next year is a surplus of 0.25% of GDP, or about 34 billion reais, with a range of 0.25% up or down, that is, the lower floor is a zero deficit.
“Although the intention to create bands around the center of the main result objective is interesting from the point of view of absorbing unexpected shocks, in practice, according to what has been observed over the last two years, the Executive Power has continued the floor of the band throughout the financial execution of the years. This constitutes, in practice, a deviation from the primary objective set in the budgetary guidelines”, underlines the report of the Independent Fiscal Institution.
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Consequences of spending
When the State is in deficit, that is to say it spends more than it collects, it must borrow. One of the consequences of this increased need to borrow is highlighted by the market as a rise in interest rates.
Currently, the economy’s base interest rate, Selic, is 15% per year. The percentage is defined by the Monetary Policy Committee (Copom), whose panel meets this Tuesday and Wednesday (10/12) to decide whether to maintain, increase or reduce the index.
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