The financial framework has already become quite frustrating.

On Friday, on the occasion of the release of the latest bimonthly Income and Expenditure Assessment Report, the federal government announced a reduction of R$1.7 billion in its spending freeze for 2024, which increased from R$15 billion to R$13.3 billion. This blockage occurs in two ways that have taken different directions compared to the July figures: the emergency – which occurs when the amount is within the maximum increase in spending allowed by law, but would harm efforts to reach the fiscal target – was reduced to R$3.8 billion; on the other hand, the blockage – which occurs when the spending forecast for this year already exceeds the inflation ceiling plus a 2.5 percentage point increase in spending compared to the previous year – increased by R$2.1 billion.

The lifting of the blockade, despite the greater reduction in emergency spending, indicates that the financial situation is deteriorating and that the government is aware of the situation. But the problem is different: all these figures quickly run the risk of becoming a grandiose fantasy. As happened with the spending cap set in 2017, which was thwarted before being abolished in 2022 by a series of “withdrawals,” the fiscal framework proposed by the government in 2023 has already been demolished thanks to a series of budgetary maneuvers. The difference in this case is that it took a few years for the spending cap to become a mere formality, while Lula’s government took just over a year to put an end to what it proposed.

Even if an expense is “exempted” from counting for the purposes of the fiscal framework, it still requires public resources, which the government will have to find somewhere.

We are not talking about truly exceptional expenditures, such as those required to combat the economic effects of the Covid-19 pandemic, or those needed to rebuild Rio Grande do Sul after the floods months ago. With the help of Congress and the Supreme Court, the government has approved more and more expenditures that will not be counted according to the rules of the fiscal framework or that lead to distortions that would help achieve the primary results objectives set by law. This is a case of pure and simple appropriation, by the government, of resources “forgotten” by Brazilian citizens, which the legislature has allowed to be counted as part of primary revenues, something that no serious public accounting model would accept (and the Central Bank does not accept). Another trick involves using the Federal Economic Fund to boost gas subsidies, and recently, Minister Flavio Dino, of the Gas Support Fund, has practically ordered an increase in government spending to fight fires, allowing these expenses not to be counted as part of the effects of the fiscal framework.

If there is at least one thing that the Workers’ Party learned from the impeachment of Dilma Rousseff, it is to carry out all these maneuvers in a way that leaves no loose threads that could lead to any trial for criminal liability for financial manipulation. But even if Lula cannot be convicted for any of these financial tricks, and even if the framework’s objectives are ultimately achieved on paper (and even that is doubtful, judging by the TCU’s recent warning), is Brazil on a path to minimal risk in terms of fiscal responsibility? The answer is a resounding “no,” and for this it is enough to note one indicator: public debt.

The reason is very simple: even if expenses are “exempted” from counting for the purposes of the fiscal framework, they still require public resources, which the government has to find somewhere, either by raising taxes, printing money (and generating inflation in the process), or going into debt. This is what economist Marcos Lisboa said in a recent interview with the newspaper. State of Sao PauloHe stated that if “something does not go into spending, something else comes out of primary spending, (…) let’s forget about the primary surplus, which has become an irrelevant evidence of the main concern, which is the increase in public debt.” The trajectory of debt is not encouraging at all: the latest data, which refer to the month of July and were released at the end of August, show that it continues to grow in nominal terms and as a percentage of GDP: the amount of R$7.14 trillion represents an increase of R$7.14 trillion. 1.02% compared to June and 78.5% of GDP according to the Central Bank’s data.

The fiscal framework has been marketed by the government, and particularly by Fernando Haddad’s economic team, as a tool to stabilize public debt. But all we have so far is the apparent contradiction of an initial target that is on track to be achieved, but with rising debt. The key here is the term “apparent,” since there is nothing contradictory here: what is there is the government’s cleverness, in collusion with other forces, in obtaining a fiscal rule that is officially respected, but with many exceptions that prevent the achievement of its alleged objectives. objectives. When Cobom spoke of the need for a “credible fiscal policy” as a necessary factor for lowering interest rates, he seemed to anticipate what was to come. Every exception to the rules of the framework makes it less credible, which forces the central bank to use the only tool at its disposal to confront the government’s fiscal irresponsibility.