MINISTRY OF FINANCE Structural Primary Balance May 2017 The Economic Policy Secretariat (SPE) reports take into account public data, whose primary sources are autonomous institutions, from public and private sectors. The aim is to organize these data in order to promote a better understanding of the Brazilian economy. The content of this material is simply informative. It has neither a prospective intention nor delimits economic policy measures to be taken by the Ministry of Finance.
Concept • The Structural Primary Balance is the one consistent with trend GDP and Cyclical excludes: Component – The cyclical effects (GDP and Commodities); – Non-recurrent fiscal operations. Non- • For example, we cannot say that, recurrent structurally, the fiscal position: operations Fiscal – Worsens when the revenue falls due to a Balance recession; – Improves when there is an one-off revenue. Structural • Therefore, it guarantees a good Balance perception about how much expansionary or contractionary is the discretionary action of the fiscal policy. Source: SPE 2
Methodology • International methodologies are adapted to the Brazilian case, in four steps: – Adjusting important groups of Tax Revenues (including State Tax on Goods and Services and Municipal Tax on Services) to the GDP cycle. – Adjusting the royalties revenues and special oil participation to the oil price cycle. – Identifying the main non-recurrent operations that affected the fiscal balance. – Decomposing the cyclical component of the federal revenues transferred to the States and Municipalities. 3
GDP Cycle and Trend 180 5% Projections 4% 170 Fixed base Index - 1995 average =100 3% Output Gap (% of Potential GDP) 160 2% 150 1% 140 0% -1% 130 -2% 120 -3% 110 -4% 100 -5% Output GAP Trend GDP GDP 90 -6% Source: SPE 4
Cyclical Component of the Public Sector Primary Balance (% GDP) 1.5% 1.31% 1.08% 0.95% 1.0% 0.45% 0.5% 0.23% 0.11% 0.06% 0.00% 0.0% -0.02% -0.09% -0.29% -0.5% -0.58% -1.0% -1.34% -1.5% -1.60% -2.0% Source: SPE 5
Non-Recurrent Fiscal Operations (% GDP) 1.2% 1.11% 0.99% 0.94% 0.88% 0.73% 0.70% 0.7% 0.46% 0.2% 0.03% 0.05% 0.03% 0.03% 0.08% -0.19% -0.3% -0.47% -0.8% Source: SPE 6
Public Sector Conventional and Structural Primary Balance (% GDP) 3.8% 3.8% 3.7% 3.4% 3.3% 3.2% 3.2% 3.7% 3.5% 2.9% 2.7% 2.6% 3.2% 3.2% 2.9% 2.2% 2.6% 2.4% 1.7% 1.9% 2.0% 1.6% 1.2% -0.6% -0.3% -1.4% -2.3% Structural Conventional -1.9% -2.5% -2.6% 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Source: SPE 7
Structural Primary Balance by entities (% GDP) 4.0% 3.0% 2.66% 2.03% 2.0% 1.65% 1.18% 1.0% -0.30% + 0.3% 0.0% -1.0% - 2.5% Central Government States and Municipalities -1.39% -2.0% State-owned Companies Public Sector -2.58% -2.26% -3.0% 2009 2010 2011 2012 2013 2014 2015 2016 Source: SPE 8
Public Sector Fiscal Impulse (p. p.) The fiscal impulse evaluates the impact of the fiscal policy by calculating the difference of the fiscal balance of two consecutive years: a fiscal balance decrease means a expansionary impulse (+) while a fiscal balance increase indicates a contractionary impulse (-). 2.3 2.3 Structural Conventional 1.5 1.4 1.3 1.0 0.9 0.8 0.8 0.6 0.6 0.5 0.5 0.4 0.4 0.2 0.0 -0.1 -0.1 -0.1 -0.1 -0.3 -0.3 -0.3 -0.5 -0.4 -0.7 -0.7 -1.2 -1.4 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Source: SPE 9
Entities’ contribution to the Fiscal Impulse (% GDP) 2.5 2.3 2.0 1.5 1.5 0.9 1.0 1.0 0.8 -0.1 +1.1 p.p. 0.5 0.0 -0.1 p.p. -0.1 p.p. -0.5 -0.4 Central Government States and Municipalities -1.0 State-owned Companies Public Sector -1.2 -1.5 2009 2010 2011 2012 2013 2014 2015 2016 Source: SPE 10
Central Government Fiscal Impulse – 2016 Breakdown (p. p.) 1.07 0.84 0.36 0.09 0.07 Mandatory Payments of Expenditure Liabilities -0.29 Impulse Social Security Social Assistance Unpaid Liabilities with Remaining impulse Benefits commitments banks and multilaterals Source: SPE 11
2017 Fiscal Impulse Projection (p. p.) 0.04 0.04 -0.49 -0.58 Public Sector Central Government States and Municipalities State-owned Companies Source: SPE 12
2017 Fiscal Impulse Projection Breakdown (p. p.) 0.26 0.01 -0.58 -0.85 Impulse Social Security Benefits Social Assistance Remaining impulse Source: SPE 13
Ministry of Finance Further information can be found in the Economic Policy Secretariat website: www.spe.fazenda.gov.br
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