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Markets Digest Fiscal Measures Announced Yesterday

BRAZIL
  • On Thursday, Finance Minister Haddad announced fiscal measures that intend to offset additional expenses in 2023’s budget. Haddad established a plan to reduce Brazil’s budget deficit to something between 0.5% and 1% of gross domestic product this year.
  • The strategy announced on Thursday relies mostly on boosting government income — by ending tax breaks, collecting overdue debts through renegotiation and revising up revenue estimates — and less on spending cuts. Haddad said the measures could potentially turn this year’s estimated 232 billion-real ($45 billion) primary deficit, which excludes interest payments, into an 11 billion-real surplus.
  • Analysts have noted these measures are unlikely to lead to a permanent surplus in the public sector or ensure medium-term debt sustainability, with further reform and a new fiscal framework required to do so, however, they represent a solid step in the right direction.
  • Interestingly, Haddad described it as clear messaging to the central bank. With the BCB next meeting on February 02, the statement will be scrutinised to see the committees assessment regarding the adequacy of the measures.
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