Government anticipates court orders and account deficit breaks record

With spending growing more than revenue, under the impact of an advance payment of court orders, the central government recorded a primary deficit of R$58.4 billion in February – the largest in history for that month.

In real terms (that is, already discounted for inflation), the hole in the federal accounts was 37.7% greater than that recorded in February 2023. The performance was already expected by the market: in the median of projections, the expectation was for a balance negative R$58.3 billion.

The primary result represents the difference between what the government collected and what it spent, not counting interest on the debt. The numbers, released this Tuesday (26), represent the sum of the results of the National Treasury, Central Bank and Social Security.

According to the Treasury report, net revenue (excluding constitutional transfers to states and municipalities) increased 23.4% in real terms compared to February last year, reaching R$132.5 billion.

However, this strong increase in revenue was not enough to offset the even greater growth in expenses. They increased 27.4% compared to the same month in 2023 and reached R$190.9 billion.

Part of this increase is due to a change in the payment schedule for court orders – debts owed by the government to companies or individuals, recognized by the courts. The payment was brought forward from the months of June and July to February, increasing the month’s expenses by R$29.6 billion.

XP Investimentos calculates that, without this effect, expenses would have grown 7.7% in the month and the deficit would have been R$28.8 billion, lower than in February 2023.

The increase in the deficit in February ended up “consuming” much of the fat accumulated by the government in January, a traditionally surplus month, when the balance was positive at R$79.3 billion.

According to the Treasury, the accumulated primary result for the first two months was positive at R$20.9 billion. This surplus was 46.9% lower than that recorded in the same period last year.

Still in this comparison between the first two months of 2023 and 2024, net revenue increased by 9.5% and expenses, by 17.1%. In other words, the rate of growth in spending was almost twice the rate of increase in revenue.

The government’s goal is to eliminate the deficit by 2024; market bets on new breach

In 2023, the government had a deficit of R$230.5 billion, the second largest in history. Part of this result is due to the settlement of court orders accumulated in previous years and the payment of compensation to states. But, even without these events, the federal accounts would have closed in the red: the deficit would be R$117.2 billion or 1.1% of GDP, according to the Ministry of Finance.

To comply with the new fiscal framework, approved last year, the government needs to bring the balance to zero in 2024, or close to it. The target is zero primary result, with a tolerance of 0.25 percentage points of GDP up (surplus) or down (deficit). Last week, the government estimated that it will end the year with a deficit of R$9.3 billion, equivalent to 0.1% of GDP – within the permitted margin, therefore.

Banks, brokers and consultancies expect a worse result, with the target not being met. The median expectations of these institutions is a loss of 0.75% of GDP for the year, according to the Focus bulletin published this Tuesday.