The Size of the Fiscal Disaster in 2014

BRAZIL ECONOMICS - Report 02 Feb 2015 by Affonso Pastore, Cristina Pinotti and Marcelo Gazzano

Few observers had any doubts that the fiscal policy put into practice by former finance minister Mantega would leave a disastrous legacy. The publication of the numbers for 2014 last week allows assessing the problem’s magnitude. From January through December 2014, the central government had a primary deficit of 0.4% of GDP, and the relaxation of the pressure exerted on the state and municipal governments contributed to generate a primary deficit for them of 0.2% of GDP. Therefore, the consolidated public sector ran a primary deficit of 0.6% of GDP for the year. The target announced by Joaquim Levy is a primary surplus for the consolidated public sector of 1.2% of GDP in 2015. Meeting this target implies there will be a negative fiscal impulse of 1.8% of GDP. In monetary terms this means R$ 100 billion. Assuming that all the measures announced so far by Joaquim Levy are really adopted, without amendment of those that require congressional approval, the savings achieved would reach R$ 50 billion, or half the necessary fiscal effort. This simple comparison illustrates the difficulty of attaining this outcome.

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