The first reactions of the financial market to the measures announced on Wednesday night (27) by the Minister of Finance, Fernando Haddad, indicate that the spending cuts are positive in terms of fiscal adjustment, but are insufficient to achieve a primary result (the difference between what is collected and government spending, excluding interest on public debt) that meets legal goals and guarantees debt sustainability.
One of the points of concern is the expansion of the Personal Income Tax (IRPF) exemption range. The chief economist at Warren Investimentos, Felipe Salto, estimates that the change in the exemption range could have an impact of at least R$45.8 billion.
The release of the measure on Wednesday afternoon had an impact on the exchange rate, which reached the highest nominal exchange rate since the adoption of the real in 1994. The real is, in 2024, the second currency that devalued the most among the large Latin American economies.
“The reason for the increase in volatility and exchange rate pressure is the decreased credibility of expense containment measures, as the change in IR moves towards a reduction in revenue, which tends to limit the effect of the cuts that will be announced”, She is the research manager and head of content at Nomad. Paula Zogbi.
Analysts point out that the impact of the measures will depend heavily on approval in Congress and the government’s firmness in implementation. There is a risk that the proposals will be dehydrated during legislative negotiations, which could generate more pressure on the financial market.
Another assessment is that the market will look for clear signs of the government’s commitment to fiscal adjustment. Measures such as prohibiting the expansion of tax benefits in the event of a primary deficit were seen as positive, but not sufficient to broadly restore credibility.
