Central Government registers biggest deficit for March in 3 years

By collecting less because of exemptions granted by the past government and with social program spending on the rise, the Central Government – National Treasury, Social Security and Central Bank – recorded the largest primary deficit for the month of March in three years. Last month, the result was negative at BRL 7.085 billion, a deficit of 10.4% greater than the negative result of BRL 6.418 billion obtained in March 2022.

When discounting inflation by the Extended National Consumer Price Index (IPCA), the account most used by analysts, the deficit is 5.5% greater than that of March last year. Both in nominal and real values ​​(adjusted for inflation), the March result was the worst for the month since March 2020, when there was a primary deficit of R$21.131 billion after the start of the covid-19 pandemic.

Despite the deficit, the result was better than expected by financial institutions. According to the Prisma Fiscal survey, released every month by the Ministry of Economy, market analysts expected a negative result of R$ 15.4 billion in March.

Even with the gap in March, the Central Government accumulates a primary surplus of R$ 31.4 billion in 2023. This is because, in January, it was registered surplus of BRL 78.326 billion.

In nominal values, this is the second highest accumulated surplus, second only to the first quarter of last year (positive result of R$ 50.026 billion). In real values ​​(adjusted for inflation), it is the ninth largest surplus in the series.

The primary result represents the difference between revenues and expenditures, excluding interest payments on the public debt. This year’s Budget Guidelines Law (LDO) establishes a primary deficit target of R$ 231.5 billion for the Central Government (National Treasury, Social Security and Central Bank).

In January, the Minister of Finance, Fernando Haddad, announced a package that intends to increase revenue and review expenditures to improve public accounts and reduce the deficit to around BRL 100 billion in 2023. At the end of March, the Secretariat for Economic Policy reported that the official forecast for primary deficit is at BRL 99.01 billion for this year.

Revenues

Revenues continue to grow at almost the same pace as expenses. In the last month, net revenues grew 3.4% compared to March last year in nominal terms. Discounting IPCA inflation, there is a drop of 1.2%. In the same period, total expenses rose 3.7% in nominal terms, but fell 0.9% after discounting inflation.

If you consider only administered revenues (related to the payment of taxes), there was a 6.2% drop in March compared to the same month last year, after discounting inflation. The biggest reductions occurred in the Tax on Industrialized Products (23.7% after deducting inflation), mainly due to the 35% reduction in the rate by the previous government as of March of last year. In second place comes the Contribution for the Financing of Social Security (Cofins), which fell 24.4% due to the exemptions on fuels in effect since the second half of last year.

Despite the recent declines in oil prices in the international market, royalty revenues rose by R$75.3 million (1.3%) above inflation last month compared to March 2022. Currently, the international barrel price is around from US$ 78 after reaching US$ 120 in the middle of last year, because of the war between Russia and Ukraine.

Expenses

Boosted by the new Bolsa Família, spending on social programs rose R$ 7.7 billion above inflation in March compared to the same month last year. Due to the strong concession of retirements and pensions shortly before the 2022 elections, Social Security spending rose by R$ 1.38 billion more than the IPCA.

These increases were offset by a drop of R$8.8 billion in the payment of salary bonuses and unemployment insurance, because this year’s schedule is spread over the first half of the year, instead of concentrating on the first three months of the year, as in 2022. In addition, there was a reduction of R$ 4.8 billion in extraordinary credits, mainly expenses associated with combating the covid-19 pandemic.

Spending on federal civil servants fell 1.6% from January to March after discounting inflation. The drop reflects the salary freeze for public servants that was in effect between July 2020 and December 2021 and the lack of readjustments in 2022. This expense should rise in the coming months with the entry into force of the 9% increase for Government servants Federal Executive, approved this Wednesday (27) by Congress.

Regarding investments (public works and purchase of equipment), the federal government invested R$ 7.85 billion in the first three months of the year. The value represents a drop of 5.3% above the IPCA compared to the same period in 2022. In recent months, this expense had grown above inflation, but the Treasury attributes the decline to the variable pace in the flow of public works.