President indicates that it will be difficult to meet Fernando Haddad’s target and that a deficit of 0.5% of GDP is “absolutely nothing”
Ibovespa, the main index of B3 (São Paulo Stock Exchange), closed down this Friday (27.Oct.2023) after the president Luiz Inácio Lula da Silva (PT) signal that it has no commitment to zeroing the primary deficit in the government’s public accounts in 2024. The index fell 1.29%, to 113,301 points. The dollar rose to R$5.01, up 0.46%.
Lula said that “difficultly” will meet the fiscal target – established by the Minister of Finance, Fernando Haddadand validated by Congress–, even after the country recorded only 1 annual surplus in the last 9 years.
The financial market became even more skeptical with the government’s commitment to balancing public accounts. The fiscal target was sanctioned in August. Analysts estimate that there will be a softening of the speech of government members, but the president’s position was clear: a deficit of 0.5% is “absolutely nothing”.
The speech calls into question the effectiveness of the new fiscal rule and relativizes one of the pillars of Brazilian macroeconomics. If the government does not adopt tough measures to eliminate the deficit, future interest rates and inflation will tend to rise. The movement of volatility in assets makes public debt more expensive and hinders the process of reducing the basic rate, the Selic, which has been falling since August.
There is a perception among part of the market that the fiscal framework has little relevance for President Lula. There are doubts whether it will be preferable for the government to change the target than to make contingencies – blocking expenses – in times of fiscal tightness. Lula was emphatic in saying that he will not cut investments in works and contradicts Minister Haddad’s speech on the fiscal framework.
The Ibovespa fell 1.59% at the day’s low, at 112,953 points. The dollar cost R$5.02 at its highest. Before Lula’s speeches, the Stock Exchange operated at 114,212 points. The North American currency was R$4.96.
SQUID & DEFICIT
Lula said that “difficultly” will meet the fiscal target in 2024. It also stated that it does not need to be “zero“. The PT member defended that the financial market is “greedy” and that he doesn’t want to start next year by cutting “billion” of priority works and investments.
“I know the disposition of the [Fernando] Haddad, I know about Haddad’s wishes, I know about my willingness, but I wanted to tell you that we will hardly reach the goal, especially because I don’t want to cut back on investment and works. If Brazil has a deficit of 0.5%, what is it? From 0.25%, what is it? Anything. Absolutely nothing”, declared the president in coffee with journalists.
The federal government sent a PLOA (Annual Budget Bill) to Congress with revenues equal to expenses, but analysts estimate that it will not be possible to achieve the objective, because the Union has increased spending and measures to increase revenues are viewed with skepticism due to the potential collection. The Ministry of Finance will have to increase revenues by R$168.5 billion.
Contrary to what the PT member said, the government’s economic team continued, until now, to defend that it was possible to meet the fiscal objective. “Everything we can do to meet the fiscal target we will do. What I can tell you is that it doesn’t need to be zero. We don’t need this, I’m not going to set a fiscal target that requires me to start the year by cutting billions in projects that are a priority for this country”, he declared.
According to the president, even the financial market knows that the goal cannot be achieved: “Often the market is too greedy and keeps demanding a target that it knows will not be met.”.
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