BrazilianStatesFiscal Sustainability

Transcription

1 BrazilianStatesFiscal Sustainability VII Jornada Iberoamericana de Financiación Local Cartagena, Colombia(Sept-2018) Guilherme Tinoco, Economic Research Department The views expressed in this presentation reflect ongoing research at the Economic Departament and do not necessarily reflect the views of the institution

2 Agenda Introduction Institutional framework Fiscal Outlook: a critical situation Whatbroughtustothispoint? Whattoreform? Perspectives Conclusion 2

3 Introduction Macro Outlook Fiscal crisis Recession Fiscal crisis Central government with large fiscal imbalances GDP growth (% a.a.) 10,0% 8,0% 6,0% 4,0% 2,0% 0,0% -2,0% 5,8% 3,2% 4,0% 6,1% 5,1% -0,1% 7,5% 4,0% 1,9% 3,0% 0,5% 1,0% Primary Fiscal Balance Central Government (% GDP) 3,0% 2,0% 1,0% 0,0% -1,0% -4,0% -6,0% -3,5% -3,5% ,0% -3,0% Source: IBGE, STN 3

4 Introduction Macro Outlook Public Gross Debt on all-time high and above other emerging Aging population makes things worse Gross Public Debt (DBGG) - % GDP 80% 75% 77,0% 9,0 8,0 Old Population Dependency Ratio 7,7 70% 7,0 65% 60% 6,0 5,0 4,0 2,1 55% 3,0 50% 45% 2,0 1,0 0, dez-06 jun-07 dez-07 jun-08 dez-08 jun-09 dez-09 jun-10 dez-10 jun-11 dez-11 jun-12 dez-12 jun-13 dez-13 jun-14 dez-14 jun-15 dez-15 jun-16 dez-16 jun-17 dez-17 jun Source: BCB, IBGE 4

5 Institutional Framework 20yearsofaframeworkthatusedtowork Statespublicdebtveryhighduring90 s 1997: Agreement with the Central Government(CG) Goodforbothparts Programa de Ajuste Fiscal Restrictions on indebtness 2000: Fiscal Responsability Law(FRL) -Twomainfiscalrules 1) D/R<200% 2) Personnel/R < 60% 5

6 Fiscal Outlook Phase1:Goodoutcomes Phase 2: Deterioration chaos State level Primary Balance (% GDP) 1,20% 0,96% 1,00% 0,82% 0,79% 0,83% 0,80% 0,69% 0,68% 0,68% 0,57% 0,60% 0,54% 0,44% 0,39% 0,40% 0,24% 0,15% 0,20% 0,11% 0,11% 0,00% -0,20% -0,40% -0,23% From 2015: Not realistic nor healthy Fonte: BCB 6

7 Fiscal Outlook Revenues and expenditures growing together until 2010s Expenditures: personnel (employees and pensions) difficult do adjust Numbers are tricky : creative accounting State Level: Revenues and Expenditures (% GDP) 10,0% 9,5% 9,0% 8,5% 8,5% 9,2% 9,2% 8,0% 7,9% Revenues Expenditures 7,5% 7,0% Fonte: STN 7

8 Fiscal Outlook Situation became critical: cash-flow serious problems NewhelpfromtheCG(20yearslengthendebt) They also raised taxes and cut investment Public Investment - State-level (% GDP) 0,7 0,9 0,7 0,6 0,6 0,7 0,7 0,5 0,7 0,9 1,0 0,7 0,7 0,9 1,0 0,6 0,5 0, Fonte: IBRE 8

9 Debt Evolution Debtgrowingagainfrom2014 Debt composition: very concentrated on CG debt ButBanksandExternaldebtwereusedfrom2012 Exchange rate risk 18,0% 15,5% 17,3% 16,2% 15,6% States Debt Composition (% GDP) 14,1% 13,2% 11,9% 11,6% 13,0% 10,5% 10,0% 9,2% 9,2% 9,1% 9,5% 11,0% 11,0% 11,0% 8,0% 3,0% -2,0% CG Banks External Other Total Fonte: BCB 9

10 Debt Evolution RJandRS:abovetheFRLlimit MGontheway Fonte: STN 10

11 Debt Evolution SP+RJ+MG+RS=80%ofdebt Othershavemuchlowerdebt R$ bilhões % do PIB % do total São Paulo 269 4,1% 36,0% Rio de Janeiro 141 2,1% 18,9% Minas Gerais 108 1,6% 14,5% Rio Grande do Sul 79 1,2% 10,6% Goiás 18 0,3% 2,4% Bahia 18 0,3% 2,4% Paraná 15 0,2% 2,0% Santa Catarina 14 0,2% 1,9% Pernambuco 13 0,2% 1,7% Outros 72 1,1% 9,6% Total Estados 747 Fonte: BCB 11

12 Debt Evolution Whatbroughtustothispoint? 12

13 Reason 1: Institutional deterioration Restrictions on credit were relaxed(2008 crisis, Big events): Credit operations (domestic and foreign banks) allowed the increase on expenditures Fonte: STN 13

14 Reason 1: Institutional deterioration Creative accounting helping states to meet FRL targets PersonnelExp(%RCL)above60%insomecases Personnel Exp. (% RCL) Fonte: STN 14

15 Reason 2: Personnel Expenditures Personnel expenditures growing 5,7% in real terms between (Above revenues and also GDP) 2015/2016 adjustment shows where the challenge is 15

16 Reason 3: 2015/2016 Recession Big Recession exposed faster the structural problems GDP and States Revenues growth (% a.a.) 5,8% 15,3% 3,2% 9,4% 4,0% 8,4% 6,1% 6,9% 5,1% 12,6% -0,1% -1,9% 7,5% 10,2% 4,0% 5,0% 1,9% 3,9% 3,0% 4,8% 0,5% 1,3% -3,5% -4,4% -3,5% -0,7% 20,0% 15,0% 10,0% 5,0% 0,0% -5,0% -10,0% GDP Revenues

17 What to reform? 1 - Institutional Future Common accounting standards(gestão Fiscal Council) Personnel Management Policy Reform(more flexible tools) Other Current New Programa de Ajuste Fiscal Regime de Recuperação Fiscal Sistema de Garantias da União Instituição Fiscal Independente 17

18 Whattoreform? 2 PensionReform Pension Reform Aging Population + high salaries pressuring pension expenditures State Pension Systems have a worse age structure than population in general Fonte: IPEA 18

19 Perspectives We run some simple exercises to have a big picture (until 2030) Simulation from the primary balance Assumption I: Market consensus for the macro scenario Assumption II: Revenues(elasticity = 1) Assumption III: expenditures Revenues 350,0 391,2 430,2 477,6 514,7 544,8 574,9 Expenditures 338,7 367,8 411,2 478,0 524,3 543,9 575,0 Personnel 184,7 207,3 235,2 260,7 289,5 327,8 340,8 Investments 49,5 42,8 44,6 61,3 67,5 43,0 42,9 Other 104,5 117,7 131,5 155,9 167,4 173,2 191,3 Balance 11,3 23,5 19,0-0,4-9,6 0,9-0,2 R$ current billions Fonte: STN 19

20 Perspectives Exercise 1: states can rollover debt all the time Conclusion: If(i) they are very sucessful in control all other expenses than pensions and(ii) the pension reform has success reducing the growth rate of retired population, primary balances can be achieved in the medium term and debt/gdp can even reduce Dívida líquida (% PIB) 18% 17% 16% 15% 14% 13% 12% 11% 10% 9% 8% Cen. A Cen. B Cen. C ,3% 14,4% 11,8% Obs: Pensions annual tax growth: A) 2,5% B) 3,5% C) 4,5% Others: 2,0% 20

21 Perspectives Exercise 2: States must repay the debt following the maturity structure(with the adjustment in investment) Conclusion: The investment go to almost zero, even with all other expenses(but pensions) constant in real terms 1,5% 1,3% 1,1% 0,9% 0,7% 0,5% 0,3% 0,1% -0,1% Cen. A Cen. B Cen. C 21

22 Perspectives This means that they will have to rollover debt in the coming years But the National Treasury is controlling much more now (Sistema de Garantias da União) So, it makes important to be solvent(pension Reform again?) Ifeconomygrowthsfasteritwillhelpalot 22

23 Conclusion Brazilian States Fiscal situation deteriorated in the past years Fiscal imbalances are severe, cash-flow problems NewwaiversfromtheCG States have a large fraction of expenditures on personnel Aging population will continue to be an issue Reforms on Institutional framework are necessary(and going on) Pension Reform and economic growth: mandatory Weseethedemandforcreditinthemediumterm,buttheStates mustbeseenassolvent 23