The absence of contingencies draws attention, says Inter's chief economist

The federal government announced, this Friday (22), a new budget blockage of R$ 22.1 billion. With the new containment, the total freeze for the year reaches R$23.7 billion.

In an exclusive interview with CNN Money, Rafaela Vitória, chief economist at Inter, critically assessed the absence of a formal contingency.

According to Rafaela Vitória, the announced blockade does not represent, in practice, a cost cut. "Actually, it wasn't exactly a cut," said the economist. The blocking rule works so that mandatory expenses remain within the expected ceiling, which corresponds to the correction for inflation plus 2.5%.

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As these expenses grew rapidly, the government had to block resources in other lines - but the total sum of expenses remained similar or even slightly higher. The budget forecast for the year points to growth in total expenditure between 5% and 5.5% above inflation.

Absence of contingency is a critical point
The point that draws the most attention, according to Rafaela Vitória, is precisely the absence of a contingency. "The absence of contingency draws attention and will continue to be a major criticism of the current fiscal framework", declared the economist.

She explained that the current fiscal rule allows the government to use the fiscal target range instead of targeting the center of the target, which reduces the pressure for a more rigorous adjustment.

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In her assessment, the government is counting on a positive revenue surprise - which grows above 5% in real terms - but uses this margin to avoid making contingencies, even though it is far from the center of the target.

BPC concentrates greatest concern among expenses
Among the expenses that grew the most and were highlighted in the report, the BPC (Continuous Payment Benefit) and social security benefits - with impacts of R$14 billion and R$11.5 billion, respectively - were identified as the main sources of pressure.

For Rafaela Vitória, the BPC is currently the program with the greatest lack of control over its growth. "This is a program that grows around 15% per year in real terms. If we look at the last four years, it grew between 60% and 70% in real terms", he stated.

The economist also highlighted an incentive that she described as perverse: as the BPC guarantees assistance to elderly people without income, there is an incentive not to contribute to Social Security. "A review of the rules is necessary so that this program does not grow at this speed. Today it is not compatible with our budget", he concluded.

Recent measures and fiscal credibility
Rafaela Vitória also commented on the programs announced by the government in recent weeks. In his assessment, most of them use funds, credit subsidies and public banks, without directly affecting the fiscal result.

However, the economist warned of the impact on fiscal credibility. "It has an impact on fiscal credibility going forward. The government, as it creates programs outside these rules, takes away its own credibility in fiscal control and adjustment," he stated.

This scenario, according to her, discourages inflation expectations and is reflected in the interest rate on bonds issued by the Treasury, which is above 7.5%.

Fiscal gradualism: necessary, but absent in practice
When asked about the defense of gradualism in fiscal adjustment, Rafaela Vitória acknowledged that drastic changes are not viable given the rigidity of the Brazilian budget.

However, she was categorical in stating that not even a gradual adjustment had been observed in recent years. "The government has not made any progress, not even gradually, in fiscal adjustment in the last four years," he said.

According to her, every adjustment made on the revenue side ended up being consumed by increases in spending, both in mandatory and discretionary expenses.

To overcome the estimated deficit of between 0.5% and 0.7% of GDP and achieve a surplus of between 1% and 1.5%, a fiscal adjustment would be necessary.

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Source: CNN