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BRAZIL: Itaú Says Fiscal Plan Won’t Ensure Compliance With Framework Until 2026

BRAZIL
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  • Itaú says that despite the government nearing the lower limit of this year's primary surplus target due to strong tax collection, fiscal risks remain elevated, considering the perception that mandatory expenditures growing above the fiscal framework limit will prevent its compliance until 2026.
  • In Itaú’s view, the recently announced fiscal package fell short of expectations and may be insufficient to ensure compliance next year, with few structural changes capable of altering the recent dynamics of expenditures, bringing more measures to gain budgetary flexibility than effective spending reductions.
  • Itaú estimates a potential saving of BRL 53 bn in two years, with BRL 31 bn in 2026, below the estimated need of BRL 35bn. They note that it will be important to monitor the progress of the package in Congress and whether new structural measures for spending control will be implemented.
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  • Itaú says that despite the government nearing the lower limit of this year's primary surplus target due to strong tax collection, fiscal risks remain elevated, considering the perception that mandatory expenditures growing above the fiscal framework limit will prevent its compliance until 2026.
  • In Itaú’s view, the recently announced fiscal package fell short of expectations and may be insufficient to ensure compliance next year, with few structural changes capable of altering the recent dynamics of expenditures, bringing more measures to gain budgetary flexibility than effective spending reductions.
  • Itaú estimates a potential saving of BRL 53 bn in two years, with BRL 31 bn in 2026, below the estimated need of BRL 35bn. They note that it will be important to monitor the progress of the package in Congress and whether new structural measures for spending control will be implemented.