Brazil’s public accounts have record deficit of R$87.6 billion in August

Negative balance was caused by expenditure linked to the pandemic

Public accounts recorded record negative balances in August, due to the extraordinary expenditure needed to deal with the covid-19 pandemic. The consolidated public sector, made up of the Union, states and municipalities, presented a primary deficit of R$ 87.594 billion last month, the highest negative result for the month of the historical series begun in December 2001. In August 2019, the primary deficit was R$ 13.448 billion. The data were released today (30) by the Central Bank (BC).

According to the head of the Central Bank’s Statistics Department, Fernando Rocha, this result was already expected due to the growth in expenditure linked to the covid-19 pandemic. On the other hand, in the year-on-year comparison, according to him, there was a 5.8 per cent increase in revenues. „This shows that the period of tax deferral is already ending and even the evolution of economic activity itself, with the reduction of social distance, is beginning to normalise more,“ he said.

The primary deficit represents the negative result of the public sector accounts, disregarding the payment of interest on public debt. The amount differs from the result released yesterday (30) by the National Treasury, of a deficit of R$96.096 billion in August, because, in addition to considering local and state governments, the Central Bank uses a different methodology, which considers the variation in the debt of public entities.

Last month, the Central Government (Social Security, Central Bank and National Treasury) presented a primary deficit of R$96.471 billion, compared to R$16.459 billion in August 2019. State governments registered a surplus of R$ 8.308 billion. In the same month last year, the surplus was R$ 2.269 billion.

Municipal governments registered a surplus of R$ 788 million in August this year. Last year, the surplus was R$ 388 million. Federal, state and municipal state companies, excluding those of Petrobras and Eletrobras, recorded a primary deficit of R$219 million last month.

According to Rocha, there was a reduction in regular transfers from the Union to states and municipalities – from R$ 23.2 billion in August 2019 to R$ 19.3 billion in August 2020. However, this positive result from local governments was due to transfers to confront covid-19, which in August this year reached R$ 15 billion.

Together, in the consolidated public sector, the result of these transfers is neutral. But when you look at it individually, it contributes to an increase in central government spending and a decrease in the deficit, or, in this case, an increase in the surplus in the sphere of regional governments,“ he explained.

From January to August, the primary deficit reached R$571.367 billion (US$571.367 billion), against the negative result of R$21.950 billion (US$21.950 billion) in the same period of 2019. In the 12 months ended in August, the primary deficit stood at R$611.289 billion, which represents 8.50% of the Gross Domestic Product (GDP, the sum of all goods and services produced in the country).

The target for this year was a primary deficit of R$ 118.9 billion. However, the public calamity decree exempted the government from meeting the target.

Interest Expenditure

Interest expenses stood at R$34.285 billion in August, compared to R$50.197 billion in the same month of 2019. The reduction in interest expenses was due to the influence of the Central Bank’s operations on the foreign exchange market (swap). The results of these operations are transferred to the payment of interest on the public debt.

If compared with last month, however, the result for August was higher. In July, interest expenses were $5.838 billion. According to Rocha, this happened because in July, there were gains of R$ 16.3 billion with swap, already in August the result was opposite, with losses of 14.3 billion.

In the first eight months of the year, these interest expenses accumulated R$ 213.736 billion, compared to R$ 258.808 billion in the same period last year.

In August, the nominal deficit, formed by the primary result and interest expenses, stood at R$ 121.879 billion, against the negative result of R$ 63.644 billion in the same month of 2019. In the seven-month period of the year, the nominal deficit reached R$ 785.103 billion, against R$ 280.759 billion in the same period of 2019.

Public debt

Net public sector debt (the balance of total credits and debts of the federal, state and municipal governments) reached R$ 4.367 trillion in August, or 60.7% of GDP, the second highest percentage in the historical series of the Central Bank, which began in December 2001. The first was in September 2002, when net debt reached 62.4% of GDP. In July this year, that percentage was 60.1%.

In August, the gross debt – which only includes the liabilities of the federal, state and municipal governments – reached R$ 6.389 trillion, or 88.8% of GDP, against 86.4% in July of this year. This is the highest percentage in the historical series of the Central Bank, which began in December 2006.