A study carried out by economist Daniel Duque, a researcher at FGV IBRE, to the Public Leadership Center (CLP), shows that the privatization of state-owned companies and the sale of fixed assets of the Union can reduce the Brazilian public debt by up to R$ 680 billion.
Currently, the country’s public debt is around 78% of GDP (Gross Domestic Product), above the level observed in other emerging nations, such as China (70%), Russia (18%) and Mexico (50% ), and from South America, such as Chile (36%) and Paraguay (35%).
The indicator is on a growth path, as the government has to shoulder more social spending in the face of the crisis generated by the pandemic and the war in Ukraine. Alberto Ramos, director of macroeconomics at Goldman Sachs for Latin America, recently stated that Brazil’s debt/GDP ratio could reach 90% at the end of the four-year term in office of president-elect Luiz Inácio Lula da Silva (PT), who takes office on January 1, 2023.
One of the factors weighing on the projection is the Proposal for a Constitutional Amendment (PEC) for the Transition, which has been put together by representatives of Lula’s team and Congress, so that the next administration can have resources outside the spending ceiling to pay for programs social.
“The size of the debt also matters for the cost of stabilizing it. The smaller the public debt, the smaller the need for a primary surplus to make it stable in the medium term,” said Duque to the InfoMoney🇧🇷
“If public debt falls by BRL 680 billion, this would correspond to 7 percentage points of GDP, which would generate a budgetary release of 0.5 percentage points of GDP with less need for a primary surplus to stabilize public debt, which corresponds to to about R$ 45 billion per year. It is the necessary fiscal space so that, in 2023, the government allows the maintenance of the amount of BRL 600 per month of the Auxílio Brasil”, he added.
Privatizations and Fixed Assets
According to the study, there is evidence to suggest that, over time, the fiscal situation tends to benefit from privatization and the interest savings brought about by privatization may outweigh the loss of the dividend flow that the former state-owned company would generate in the hands of the sector. public.
In the second quarter of 2022, the country had 134 active federal state-owned companies, 40 of which were under direct control of the Union. The others are state-owned subsidiaries, with indirect control by the state. Of the companies directly controlled by the government, more than half are dependent on the Treasury (for personnel expenses and capital expenditures, for example).
But there are more than 100 state-owned companies that do not depend on the Union to cover their costs, such as Petrobras, Correios, BB Seguridade, Caixa Econômica Federal, Caixa Seguridade, BNDES, Banco do Brasil, among others. “This does not mean that they always generate profits or that they do not occasionally need help from the Union. The financial relationship between the federal government and its non-dependent state-owned companies can take place through capital contributions or the receipt of dividends.”
Most of the net worth of state-owned companies is concentrated in those that are not dependent on the Union, which pay a large amount of dividends, which would no longer be collected by the government in the event of privatization. State-owned companies dependent on the Union generate annual net losses of around R$ 25 billion.
In addition to state-owned companies, the government can also reduce the size of public debt through the sale of fixed assets, such as land, houses and underutilized buildings. The study differentiates fixed assets into furniture, infrastructure (roads, railways, airports, ports, etc.), land managed by Funai and Incra, works in progress and others (remainder, such as land and public buildings little or not used, which do not generate flow Of box).
Assuming 5% real interest and 2% GDP growth, reducing the annual net dividends for 2022, Duque calculated how much could be reduced from the public debt considering different scenarios of sale of state-owned companies and government fixed assets. See the chart below (values in BRL billion are still without dividend discount).
“It’s difficult to estimate how much the government would be able to sell each state-owned company for, so we used the value of each company’s equity as a basis, adding 30%”, explains the economist.
In the scenario with the sale of all dependent state-owned companies, one non-dependent, 50% of properties not or little used and 40% of infrastructure assets, the discount on the debt would reach approximately R$ 680 billion, discounting the approximately R$ 25 billion in dividends that the Union would no longer earn.
“It is important to note, however, that such a level of dividends would not necessarily be repeated continuously in the medium term, in view of the current special conditions of state-owned companies, even more so considering the history of need for contributions from institutions such as Petrobras and BNDES” , ponder.
The economist also calculated the primary fiscal space freed up, or how much the government could save in surplus by selling assets. In the same scenarios, savings would be between R$15 billion and R$45 billion per month, as shown in the graph below.
“It is important to note, however, that the estimates above do not conjecture about the impact of the liquidation of these assets on the real interest to be paid on the public debt”, warns Duque. This means that, if there is a reduction in interest rates, the fiscal space freed up could be even greater.
In another scenario simulation, the economist projected the impact of cutting interest rates. With a drop of one percentage point, the fiscal space released could reach R$96 billion, as shown in the chart below.