Brazil boosts analysis of risks to public finances

By on 25/05/2017 | Updated on 24/09/2020
Brazil's treasury secretary Ana Paula Vescovi talks to journalists. (Image courtesy: Ministério da Fazenda)

Brazil has beefed up the way it assesses risks to its public finances after the International Monetary Fund identified “weaknesses” in planning.

Amid deteriorating economic conditions, the country’s treasury has expanded the “fiscal risk statement” (FRS) that it publishes annually alongside the budget to highlight threats to the public accounts posed by state enterprises, sub-national authorities and changing macroeconomic conditions.

The move – which includes the creation of a dedicated treasury team to monitor fiscal pressures – highlights the growing importance of understanding and managing risks that could derail the public accounts during economic downturns.

Brazil has been a pioneer of greater budget transparency within Latin America, and has published its annual FRS since 2002 in what was seen during its first decade largely as a bureaucratic exercise at a time of economic growth.

The country enjoyed stable and favourable international and domestic conditions that included high commodity prices, controlled inflation, and federal and local governments strongly committed to ensuring primary surpluses.

However, since 2014 Brazil’s economy has deteriorated as commodity prices have fallen and inflation has risen, going into recession in 2014. In 2015 the budget deficit hit a record high of 10.2% of GDP, and there has been stiff resistance to cuts through, for example, pension reform.

While cranking up the pressure on the fiscal accounts, economic crisis has also increased the potential risks posed by the financial needs of state enterprises or the liabilities of sub-national governments.

In January, the IMF reported on fiscal transparency in Brazil, identifying “weaknesses” in policy such as a failure to report liabilities, a lack of information on the cost of policies, an opaque relationship between central government and public banks and sub-national authorities, and corruption in large public enterprises.

The IMF’s recommendations informed a joint effort to reform fiscal management in the new economic climate by Brazil’s treasury and planning ministry (Seplan).

A greatly enhanced FRS has now been published to accompany this year’s budget, bringing Brazil into line with international best practice and standards on data quality.

This is more comprehensive, employs new methodologies, and analyses specific fiscal risks in more detail and with greater sensitivity – especially those that could affect outstanding debt. These include risks related to concessions, permits and public-private partnerships, lawsuits, and the financial assets of sub-national bodies such as federal loans.

A dedicated department has been created within the Secretaria do Tesouro Nacional to monitor risks permanently, the General Coordination of Planning and Fiscal Risks (COPEF/STN).

For up to date government news and international best practice follow us on Twitter @globegov

See also:

Pensions reform aims to tackle Brazilian deficit

Tax evasion in Latin America worth 6.7% of GDP, UN agency finds

New transparency rules to help tackle corruption


About Gavin O’Toole

Gavin O’Toole is a freelance writer and editor in London. He has written for leading newspapers, magazines, wire services and business schools about financial markets, business and regulation around the world. He has a particular interest in international relations, and a specialism in Latin American affairs. He has conducted research on this region’s political economy and has also published a number of books about its politics and natural environment. His latest title, Environmental Security in Latin America, will be published by Routledge in September 2017.

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