Economic Information

PRESS RELEASE - July 28, 2017

Fiscal Policy
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I - Fiscal results

The consolidated public sector registered a primary deficit of R$19.6 billion in June. The Central Government posted a primary deficit of R$19.9 billion, while regional governments and state-owned companies turned in respective primary surpluses of R$240 million and R$145 million.

In the year, the consolidated public sector posted a primary deficit of R$35.2 billion, compared with a deficit of R$23.8 billion in the same period of 2016. In the 12-month period up to June, a primary deficit of R$167.2 billion (2.62% of GDP) was observed, 0.15 p.p. of GDP higher than the deficit accumulated up to May.

Consolidated public sector's nominal interests, appropriated on an accrual basis, reached R$31.5 billion in June, compared with R$36.3 billion in May. This trajectory reflected the smaller number of working days in the month and the effect of the lower Selic rate. Cumulative nominal interests in the year totaled R$206.6 billion, compared with R$173.3 billion in the first six months of the previous year. Nominal interests reached R$440.3 billion (6.89% of GDP) over twelve months, rising by 0.14 p.p. of GDP when compared with the May result.

The consolidated public sector's nominal result, which includes the primary result and nominal interests appropriated on an accrual basis, posted a deficit of R$51.1 billion in June. In the year, the nominal deficit totaled R$241.8 billion, compared with a deficit of R$197.1 billion in the same period of the previous year. In the 12-month period, the nominal result posted a deficit of R$607.5 billion (9.50% of GDP), increasing by 0.29 p.p. of GDP when compared with the previous month's deficit.

The nominal deficit observed in June was financed by expansions of R$28.3 billion in the securities debt, R$22.5 billion in other domestic financing sources, including the monetary base, and R$4 billion in the net bank debt, which was partially offset by the reduction of R$3.8 billion in the net external financing.

II - Federal securities debt

The domestic federal securities debt, outside the Central Bank, evaluated by the portfolio position, totaled R$3,233.7 billion (50.6% of GDP) in June, increasing by R$103.5 billion compared with the previous month. This result reflected net issuances of R$72.2 billion, increasing by R$0.3 billion due to currency depreciation, appropriation of interests in the amount of R$22.8 billion and R$8.2 billion in asset adjustments.

It should be highlighted net issuances of R$37 billion in LFT; R$25.1 billion in LTN; R$5.7 billion in NTN-B, and R$4.5 billion in NTN-F.

The participation by indexing factors registered the following evolution in relation to May: the percentage of exchange-indexed securities remained stable at 0.3%; Selic-indexed securities rose from 22.9% to 23.8%, due to net issuances of LFT; fixed-rate securities increased from 26.4% to 27.1%, due to net issuances of LTN and NTN-F; and inflation-indexed securities rose from 23.3% to 23.5%, due to net issuances of NTN-B. The participation of repo operations decreased from 26.8% to 25%, showing net purchases of R$76 billion.

In June, the maturity structure of the securities debt in the market was as follows: R$190.4 billion, 5.9% of the total, maturing in 2017; R$465.4 billion, 14.4% of the total, maturing in 2018; and R$2,577.8 billion, 79.7% of the total, maturing as of January 2019.

The total net exposure in foreign exchange swap operations reached R$91.7 billion at the end of June. The result of these operations in the period (difference between the yield of the Interbank Deposit (DI) and the exchange variation plus coupon) was unfavorable to the Central Bank in the amount of R$0.5 billion.

III - Public Sector Net Debt (PSND) and General Government Gross Debt (GGGD)

The PSND reached R$3,112 .9 billion (48.7% of GDP) in June, increasing by 0.6 p.p. of GDP compared with the previous month.
In the year, the PSND/GDP ratio increased by 2.5 p.p. as a result of the incorporation of nominal interests (increase of 3.2 p.p.), the primary deficit (increase of 0.6 p.p.), the acknowledgement of debts (increase of 0.1%), the effect of nominal GDP growth (decrease of 0.9 p.p.), the accumulated exchange rate devaluation of 1.5% (decrease of 0.2 p.p.) and the parity adjustment of the basket of currencies that compose the net external debt (reduction of 0.2 p.p.).

The GGGD (Federal Government, INSS, state and municipal governments) reached R$4,674.6 billion in June (73.1% of GDP), rising by 0.6 p.p. of GDP compared with the previous month.

IV - FIES - Appropriation of fiscal impact

Loans linked to the Student Financing Program (FIES) are classified into two types regarding risk: i) operations guaranteed by the Brazilian Educational Credit Guarantee Fund (Fundo de Garantia de Operações de Crédito Educativo - FGEDUC); and ii) operations not guaranteed by the FGEDUC (National Treasury's risk).

Loans granted entirely under the National Treasury's risk (not guaranteed by the FGEDUC) leads to the expansion of the PSND and thus increase the primary fiscal deficit.

Loans guaranteed by the FGEDUC partially increase the primary fiscal deficit, considering that installments that are not effectively protected by the guarantee fund are not registered as a financial asset in the PSND.

As of June 2017, the record of FIES operations in fiscal statistics will be improved. The first improvement consists in the inclusion of operations with adequate coverage by the FGEDUC, provided by the Brazilian financial institutions Banco do Brasil (BB) and Caixa Econômica Federal (CEF). Until May, statistics incorporated all financing granted by BB (regardless of guarantees by the FGEDUC).

The second improvement refers to adjustments in the stock of operations guaranteed by the FGEDUC (BB and CEF), so as to keep consistency with the changes in the Program's default rates and the FGEDUC capacity to cover the losses incurred by the Program.

In summary, the following effects from the FIES will be incorporated in the primary fiscal result: i) a deficit impact of total disbursements without FGEDUC guarantee; ii) a fiscal deficit impact consequent upon disbursement of installments with FGEDUC guarantee, which are outside the financial limit of the guarantee fund; iii) a deficit impact of late payment of credit, based on the percentage of those in default for more than 360 days (deadline to trigger the FGEDUC guarantee); iv) impacts associated with variations in the FGEDUC net worth (surplus or deficit); and v) reduction of PSND's assets in the period up to five years, if the volume of financing with FGEDUC guarantee remains at a level above that established in the Fund's regulation (10 times its net worth). In the latter case, new financing (with and without guarantee) will, in its entirety, generate a primary fiscal deficit.

Notwithstanding the values incorporated into the PSND according to the new record system are very similar to those of the previous record system effective until May, these improvements are relevant in view of the increased volume of financing expected in the amortization phase. In the latter case, the default level observed in each period shall become a relevant variable to measure the fiscal impact involved in the operationalization of the Program.

In June, estimated FIES assets reached R$72.3 billion, comprising both modalities, with and without FGEDUC guarantee, while the value registered of PSND totaled R$33.8 billion. The difference between these two values, after deducting appropriated interests, represents an estimate for the primary fiscal deficit associated with the program, which are included in the "below the line" fiscal statistics for the period from January 2010 to June 2017.

This alteration will only affect the future dynamics of FIES financing, with no impact on the previous fiscal results.

Finally, the Methodological Note DEPEC 2017/092, dated July 26, 2017, available at, includes more detailed information regarding the new form of appropriation of fiscal impacts from FIES funding based on macroeconomic fiscal sector statistics disclosed by the Central Bank of Brazil.