Brazil’s consolidated public sector—including the federal government, states, municipalities, and state-owned enterprises—posted a structural deficit of 1.41% of the Gross Domestic Product (GDP) over the first three quarters of 2024, according to a report by the Secretariat of Economic Policy (SPE). This result comprises a 1.16% deficit from the central government, 0.16% from regional governments, and 0.09% from state-owned enterprises.
The structural fiscal outcome excludes non-recurring fiscal events from the consolidated public sector’s primary result, as calculated by the Central Bank. This includes extraordinary revenues and spending and removes the cyclical effects “derived from the level of economic activity and fluctuations in oil and iron ore international prices.”
The structural fiscal deficit increased in 2023 compared to 2022. The consolidated public sector recorded a result of -2.14% of the potential GDP, up from -0.60% in 2022. For the central government, the deficit in 2023 was 2.00% of potential GDP, alongside -0.13% from regional governments and -0.02% from state-owned enterprises.
The results recorded up to September 2024 indicate an improvement compared to 2023 but remain worse than the figures for 2022. Nonetheless, the government celebrated this result in the report released by the SPE.
“The preliminary structural fiscal outcome for the central government in 2024 indicates a trend towards structural fiscal consolidation, with a positive variation (improvement in solvency conditions). Up to the third quarter, there was a 0.84 percentage point improvement in the central government’s structural fiscal result in 2024 relative to the annual total for 2023, recovering 71% of the structural deterioration observed in the previous year,” said the SPE.
The secretariat anticipates that the final results for 2024 will show “a more significant fiscal consolidation compared to 2023, as a considerable portion of the spending adjustments was concentrated in the second half of 2024 and, therefore, has not been fully captured in statistics up to the third quarter.”
According to the SPE, last year’s data indicate that a pro-cyclical fiscal policy was adopted, meaning a contractionary (negative fiscal impulse) approach in the face of a negative GDP gap by the end of 2023. In 2023, however, a countercyclical policy was adopted regarding aggregate demand, leading to fiscal expansion despite a negative gap.
The GDP gap is the difference between the actual economic performance and its potential. A positive gap means the economy is operating above its potential, which tends to have inflationary effects, while a negative gap indicates the economy is running below its productive capacity.
The SPE noted in the report that the result suggests that, although an expansionary fiscal policy could have been justified given the 2023 close with a negative GDP gap, the discretionary fiscal policy choice was pro-structural consolidation in 2024. This is crucial for recovering the structural fiscal outcome post-transition proposal to amend the Constitution, the SPE added. Still according to the SPE, the economic growth seen in 2024 is attributed to factors other than the fiscal impulse, which was contractionary.
The secretariat also highlighted that it has revised the methodology for calculating potential GDP, utilizing the production function approach. Additionally, it now considers the economic cycle and the cycles of oil and iron ore prices. Non-recurring effects on revenue and spending have also been re-evaluated throughout the official records starting in 1997.
