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BRAZIL: Itaú on Fiscal Scenario Following Nov Budget Balance Data

BRAZIL
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  • Itaú have noted the government is reaching the lower limit of this year's primary result target due to strong revenue collection. Despite this, Itaú point out that fiscal risks remain high considering the perception that mandatory expenses growing above the fiscal framework limit will prevent reaching the target by 2026 and the difficulty in achieving a path of convergence of primary results.
  • Itaú believe the package to curb expenditure growth recently approved by Congress may be insufficient to ensure compliance with the framework by 2026, with few structural changes capable of altering the recent dynamics of expenses.
  • Itaú estimate potential savings of BRL 54 bn in 2 years, with BRL 30 bn in 2026, below the estimated need of BRL 40 bn. Going forward, it will be important to monitor whether new structural spending control measures will be implemented, in addition to the risks of deterioration in the primary result associated with the income tax exemption proposal.
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  • Itaú have noted the government is reaching the lower limit of this year's primary result target due to strong revenue collection. Despite this, Itaú point out that fiscal risks remain high considering the perception that mandatory expenses growing above the fiscal framework limit will prevent reaching the target by 2026 and the difficulty in achieving a path of convergence of primary results.
  • Itaú believe the package to curb expenditure growth recently approved by Congress may be insufficient to ensure compliance with the framework by 2026, with few structural changes capable of altering the recent dynamics of expenses.
  • Itaú estimate potential savings of BRL 54 bn in 2 years, with BRL 30 bn in 2026, below the estimated need of BRL 40 bn. Going forward, it will be important to monitor whether new structural spending control measures will be implemented, in addition to the risks of deterioration in the primary result associated with the income tax exemption proposal.