Rousseff prepares announcement of losses that sum up to R$ 50 billion in 2015 accounts

Fernando Rodrigues – UOL, 10/20/2015

The government is expected to send in to Congress this week a new target for the 2015 budget. The year begun with the forecast of a primary surplus of 1,13% of the gross national product (GNP) (R$ 66,3 billion). In July, it dropped to 0,15% (8,8 billion).
Now, the government will finally admit to being in deficit, since there won’t be enough resources to close public accounts in 2015. The shortcoming is estimated at around -0.5% to -0.85% of the GNP. The worst forecast (and most likely scenario) is equivalent to $49,9 billion.

Rousseff will return to Brazil on Wednesday, after an international tour of Scandinavia. She will review what the economic team will present as the deficit forecast for this year. Only then will the new budgetary target be sent to Congress.

The figures are being adjusted by finance minister Joaquim Levy and planning minister, Nelson Barbosa. Mateus Netzel, UOL’s reporter, collaborated in this investigation. An option to reduce the percentage of the deficit would be to purge certain infrastructure investments. But people in the government fear that this will be interpreted disguising the accounts.

RESETTING FISCAL PEDALING
The deficit will be larger this year because the government decided to incorporate the “fiscal pedaling”, which continued happening in 2015. This maneuver consists in taking money from public banks to pay certain accounts of the central government. The plan is to end the year resetting this problem, in order to avoid the risk of Rousseff’s impeachment, in case they proceed with the decision. The opposition’s main argument against Rousseff is that “fiscal pedaling” did happen in this current year.

IMPACT
Those who are good at math could have probably predicted that there would be a deficit this year. But the official percentage has the potential to produce a shock in financial markets.
It will be the consolidation of the failure of contractionary economic policy of Rousseff’s second term. It has unfolded in recession, but still didn’t get the necessary balance to close federal bills positively.

The announcement should increase pessimism over the future of the economy. For 2016, the expected deficit is of 0.5% of GNP. Thus far.

HISTORICAL RECORD
A primary deficit of 0.85% would be the highest ever recorded since the beginning of the historical series of the Central Bank in 2001. This value would overcome the only primary deficit recorded so far, last year, when it reached 0.63% of GNP.
The primary balance is the difference between government revenues and expenditures, excluding interest payments of public debt.

FISCAL TARGET
The fiscal target approved by the Budget Guidelines Law (Lei de Diretrizes Orçamentárias) for the 2015 budget was a surplus of R$ 66.325 billion, equivalent to 1.1% of GNP.

Taking into consideration the decreasing inflow of funds and the forecast of economic recession for 2015, the government was forced to revise its numbers and aim lower. A breach of the fiscal target could incur a fiscal liability crime and equip an impeachment process for Rousseff.

To avoid this, the government sent a bill to Congress amending the LDO and reducing the surplus target for 8.747 billion, the equivalent to 0.15 % of GNP.

The project’s rapporteur, Mr. Hugo Leal (Pros -RJ), along with the project itself are both frozen in the Budget Committee, where it must be approved first, before being brought to Congress.
A similar strategy to this one has already been used in 2014, when the government pushed through Congress a law that made fiscal targets more flexible, and avoided a legal liability for the breach of the target.

Read original article in Portuguese here

Translated by Julia Cardoso, senior at The George Washington University and Staff Intern at Brazil Institute. 

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