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Santander Note Temporary Revenue Spike to Delay Fiscal Target Adjustment

BRAZIL
  • Bloomberg have reported that according to Santander’s chief economist, President Lula’s administration is benefiting from temporary, one-time sources of revenue that will likely postpone to the second quarter an unavoidable move toward a looser fiscal target in Brazil.
  • From Santander’s most recent Brazil scenario review, they highlighted the revenue results are the key element to track this year, in their view. They noted they are observing a better short-term trend in federal tax collection, yet ~BRL290 billion is required in net revenues to close the gap with the government’s budget estimate (compared to December’s level). This backdrop reinforces the risks from the fiscal point of view, as Santander see government debt remaining on an upward trajectory.
  • There is a possibility of changes in the fiscal primary target between the unveiling of the 2025 budget guidelines (scheduled for April 15), which could set a primary surplus of 0.5% of GDP, and the second 2024 Budget review (May 22), when the results of recent revenue measures will become clearer.
  • For the fiscal rule, Santander continue to see risks regarding its full compliance and excessive reliance on the materialization of favourable economic cycles and high effectiveness of reducing the tax breaks.
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