Brazil’s Public Finance Slippage: Not Just About Growth

Brazil’s worsening fiscal accounts have attracted attention all year, and that has intensified in the past few weeks since the release of very poor September figures. Concern about public finances has helped fuel a sell-off in Brazilian credit relative to other BBB-rated Latin American borrowers such as Colombia and Peru. Analyst rhetoric about the situation has thus turned sharply negative. To some extent, this worry appears justified. Brazil’s fiscal accounts have genuinely worsened in the past two years, and the government will need to carry out an adjustment at some point. Still, near-term debt dynamics do not look particularly unfavorable. The structural growth slowdown — which has contributed at least marginally to fiscal deterioration — seems to be the more urgent problem.

公共部门的主要预算盈余占for 1.6 percent of gross domestic product in the 12 months ended September 2013. Although state and local government finances have worsened somewhat, most of the deterioration has occurred at the federal level and more specifically in the treasury accounts, although the social security deficit has widened modestly as well. Of course, this worsening trend has occurred against the backdrop of sluggish growth. Indeed, since 2009 Brazilian public finances have become significantly more cyclical. Previously, the primary fiscal balance essentially stayed constant, regardless of growth. In the past several years, though, the balance has fluctuated in tune with economic trends (see chart 1).

Chart 1: Brazil real GDP (% y/y) and change in primary fiscal balance (% of GDP)

资料来源：JPMSI，Bacen，JPMAM;通过2013年的数据和预测

然而，财政滑动似乎超出了纯粹的周期性发展。假设初级盈余2013年以大约为1.3％的GDP的风，它将在两年内在弱势而积极的增长期间在两年内摆动1.8个百分点。由Hodrick-Prescott过滤器产生的输出间隙的一个估计，显示了在过去两年中相对于潜力的经济减弱约2.1个百分点（见图2）。尽管如此，H-P过滤器的众所周知的缺点，测量输出差距的其他努力产生了广泛的估计。然后，公共财政从2011年开始移动了几乎和产出差距一样多。在经合组织经济体中，自动稳定剂普遍存在，财政账户的周期性弹性通常约为0.4。像巴西这样的发展中国家的公共财政通常会显示得多的敏感性。即使假设0.25的乘数，这可能有点高，循环调整的主要财政平衡似乎在过去两年中通过大约1.2个百分点的GDP点滑落。

Chart 2: Brazil real GDP and H-P filter trend (1995 = 100, sa)

Source: JPMSI, JPMAM; data and forecasts through Q4 2013

As a corollary to the above point, the present level of the primary surplus, adjusted for the business cycle, probably stands only marginally above the actual reported figure, because the output gap itself is fairly small. The economy enjoyed a strong recovery in 2010 and appears to have begun overheating by the end of that year. Weaker growth since then has eliminated that problem but has probably opened up only a small gap in the other direction. Recent trends in the labor market, in which tightness has eased somewhat but the unemployment rate remains very low, support that contention. Again using a 0.25 fiscal multiplier, this year’s cyclically adjusted primary fiscal surplus would stand at 1.6 percent of GDP, compared with 1.3 percent for the actual figure and 2.8 percent for the cyclically adjusted balance in 2011 (see chart 3). Recent surpluses represent a level change compared with the early 2000s, when the cyclically adjusted surplus ran between 3 percent and 4 percent of GDP.

Chart 3: Brazil actual and cyclically adjusted primary fiscal surplus (% of GDP)

资料来源：JPMSI，Bacen，JPMAM;通过2013年的数据和预测

今年的收入和支出corrobora的趋势te the notion that some structural slippage has occurred. Revenue growth has weakened recently, compared with its norm before the 2008 global financial crisis, but has remained reasonably strong. Indeed, in the six months to September, the central government’s intake rose 10.6 percent year-over-year, a pace slightly stronger than nominal GDP. More broadly, revenues as a share of GDP have essentially tracked sideways since the beginning of 2012 (see chart 4). Spending, on the other hand, has continued to climb rapidly. It increased 14.4 percent year-over-year during the middle two quarters of 2013, similar to its post-2000 clip. Spending has moved steadily higher relative to GDP: by 1.6 percentage points in the past 24 months. It appears that the government has not adapted its spending habits to a new, structurally lower pace of economic (and revenue) growth. As a result, the government’s footprint, already fairly large by the mid-2000s for a country at Brazil’s income level, has continued to expand.

图4：巴西联邦政府收入和支出（占GDP的百分比）

Source: Fazenda, JPMSI, JPMAM; data through Q3 2013

财政滑雪是否威胁巴西的债务可持续性？近年来，该国已取得进展，净债务比率下降和利率世俗地下降。因此，可以保证一些公共财政的放松。但是，在这一领域申请了两项警告。首先，巴西的公共债务总额低于其净债务，因为一些债务创造资助资助资产积累，例如国有银行的国际储备和索赔（见图5）。其次，从实际利息支付行为计算的暗示利率表明总债务是相关的审议。使用总债务的隐含利率比使用净债务数据的利率更密切地匹配市场上的趋势（见图6）。这一结果最有可能从公共部门资产负债表的资产方面产生的低收入。例如，该国的国际储备主要投资美国国债和可比证券。因此，债务可持续性锻炼应侧重于稳定总债务，或者应将上述市场利率应用于净债务水平。 Moreover, it seems likely that at some point fairly soon, the government will need to recapitalize BNDES, the Brazilian development bank, implying a net debt ratio several percentage points of GDP higher than the present reported figure.

Chart 5: Brazil public debt, net and gross (% of GDP)

Source: JPMSI; data through September 2013

Chart 6: Brazil public sector interest rate, using net and gross debt denominators (%)

Source: Bacen, JPMAM; data through September 2013

Assuming an eventual net debt ratio around 45 percent of GDP (compared with 35 percent, as shown in present figures) and applying a real interest rate of 7 percent (between the implied rates using net and gross debt figures) and a conservative potential GDP growth rate of 2.5 percent, the primary surplus required to stabilize debt would be roughly 2 percent of GDP. With considerable uncertainty about all three variables, the actual figure could lie on either side of that figure, although it seems unlikely to stand either below 1 percent of GDP or above 3 percent of GDP. Most likely, then, debt sustainability requires a somewhat higher primary fiscal surplus than the government is running, and at some point an adjustment will prove necessary. Still, an upward spiral of the debt ratio appears unlikely under the present circumstances, given that the actual primary surplus is not far below the stabilizing level. More likely: The debt ratio will drift gradually higher, as indeed it began to do in September.

从信誉和金融市场的角度来看，经济在过去几年中的潜在增长率的明显下降看起来比财政滑雪更加紧迫。自2010年以来，较不利的增长衡量折扣表明，潜在的增长，以前认为在3.5％至4.5％的范围内，已经跌至2.5％的比率。即可在未来几年吸引大规模资本流入的步伐似乎不足。与此同时，有意义的财政恶化发生，主要财政盈余的下降超出了周期性效应。政府对这种恶化的急救态度致力于对投资者关注的持续的原因，同时不一定是从市场分析师的危言耸道的语气。财政平衡在短期内越多，越来越多的政治困难的障碍 - 将是最终所需的校正。这种疲软的增长和更令人印象深刻的财政努力似乎在今年相对于哥伦比亚，秘鲁和巴拿马等比较评价的拉丁美洲借款人来证明巴西的信贷传播扩大。在巴西的情况下，这一信贷率分别为107个基点，另外三个国家分别为72,68和87个。逆转市场趋势可能需要真正的政策变化。

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