Brazil Fiscal Policy

I – Fiscal results

The consolidated public sector primary surplus reached R$17.7 billion in January. The Central Government result posted a surplus of R$13.8 billion and the regional governments, R$4.5 billion. State-owned companies registered a deficit of R$562 million.

In the year, the cumulative primary surplus reached R$103.4 billion (2.81% of GDP), a 0.02 p.p. GDP increase when compared to the surplus recorded in 2010.

Nominal interests, appropriated on an accrual basis, reached R$19.3 billion in January, compared to R$19.5 billion in December. This decrease was influenced by the lesser number of working days in the month. In cumulative terms for the year, nominal interest rates reached R$200.5 billion (5.44% of GDP).

The nominal result, which includes the primary result and the appropriated nominal interest, registered a deficit of R$1.5 billion in January. In cumulative twelve-month terms, the result was a deficit of R$97.2 billion (2.64% of GDP).

The financing of the nominal deficit registered in January occurred through an expansion of R$54.6 billion in the securities debt partially offset by reductions of R$23 billion in the net banking debt, of R$18.3 billion in the net external financing and R$11.9 billion in the other sources of internal financing, which include the monetary basis.

II – Federal securities debt

The federal securities debt outside the Central Bank, estimated by the portfolio position totaled R$1,542.5 billion (41.9% of GDP) in January, recording a decrease of R$61.4 billion compared to the previous month. The result reflected net redemptions of R$79.3 billion, and incorporation of interest of R$17.9 billion.

The highlights were the net issuance of R$6.8 billion in Treasury Financing Bills (LFT) and R$4.2 billion in National Treasury Notes – Series B (NTN-B), and redemptions of R$65.8 billion in National Treasury Bills (LTN), from R$22.3 billion in NTN-F and R$1.9 billion in NTN-C.

The participation by indexing factor recorded the following development in relation to December: the percentage of securities indexed to exchange rate remained at 0.5%; that of the securities linked to the Selic rate decreased from 28% to 27.8%, despite the issuance of R$6.8 billion in LFT; that of fixed rate securities declined from 32.7% to 27.5% due to net redemptions of LTN and NTN-F; and securities linked to price indexes declined from 24.2% to 23.9%. These changes were offset by repo operations, whose share rose from 13.9% to 19.6% in the same period. The rise in such operations corresponds to the net sales of R$115.1 billion in the secondary market, also reflected in the reductions of participations linked to Selic rate, fixed rate securities and price indexes.

By late January, the maturity structure of securities debt in the market was as follows: R$249.2 billion, 16.2% of the total, due in 2011, R$300.9 billion, 19.5% of the total, to maturing in 2012, and R$992.4 billion, 64.3% of the total, maturing as of January 2013.

In January, total net exposure in reverse exchange swap operations reached R$5.8 billion. The result of these operations (difference between DI profitability and the exchange variation plus coupon) was favorable to the Central Bank in R$12 million, in the cash concept, an amount considered in the settlement of the public sector borrowing requirements.

III – Public sector net debt

The public sector net debt totaled R$1,476.1 billion (40.1% of GDP), a decline of 0.4 p.p. of GDP when compared to the previous month.

The reduction found in the ratio PSND/GDP in January was influenced by the primary surplus registered in the month, which contributed with 0.5 p.p. of GDP, and by the growth in current GDP, which contributed with 0.4 p.p. Reversely, appropriated nominal interest contributed to the increase of the ratio with 0.5 p.p. of GDP.

The General Government Gross Debt (Federal Government, Social Security, state governments and municipal governments) amounted to R$2,058.9 billion (55.9% of GDP) in January, compared to R$2,011.5 billion (55.1% of GDP) in December.