BRAZIL – Fiscal Policy – Fiscal X-Ray by Tatiana Pinheiro published by Santander (7/2016).
“We believe the government’s strategy to tackle the fiscal adjustment will result in a downward trend for expenditure ratio to GDP from 2017 onward, and the economic recovery will result in an upward trend for revenue ratio to GDP from 2017 onwards. However, we expect a slow reversal of the current central government’s primary deficit.
In our opinion, a faster fiscal adjustment process would require a positive surprise on the revenue side, likely as a result of an economic rebound, given that structural reforms will not promote relevant savings in the short term, and an increased tax burden is not yet a part of the government’s strategy.
Due to a larger budget deficit in the short term, and a long-term process of reversing the primary deficit to a surplus, we foresee gross- and net-debt-to-GDP ratios heading north until 2020 and reaching 84% and 47% of GDP, respectively.
We believe the continued upward trajectory for both gross- and net-debt-to-GDP ratios may not trigger a revision of the sovereign credit risk, if, and only if, the government fulfills the promises made regarding the implementation of structural reforms.”
BRAZIL – Fiscal Policy The Clash of Titans — Desirable versus Feasible by Tatiana Pinheiro e Everton Gomes published by Santander (7/2016).
“In our view, there is no room to increase the tax burden; the recessionary environment drains economic taxable resources. The revenue dynamics and economic cycle are linked and the GDP contraction of 3.8% drained 1.9% of GDP in revenue, according to our analysis.
Since 2014, the recession has drained at least 2% of GDP in revenue while federal spending has kept growing at 1.5% of GDP per year, leading to a primary deficit of 1% of GDP (excluding the fiscal maneuver payment).
In our opinion, to build the bridge to a sustainable public debt ratio to GDP, a long-term agenda based on structural reforms is required. However, all long-term measures have a higher degree of difficulty in terms of gaining Congressional approval, and they do not produce an immediate impact on fiscal imbalance…”
