BC projects a deficit of US$ 30 billion for external accounts in 2021

The projection of the Central Bank (BC) for the balance of external accounts this year went from a deficit of US$ 21 billion to a deficit of US$ 30 billion. The result corresponds to 1.8% of the Gross Domestic Product (GDP, the sum of all goods and services produced in the country) and mainly reflects the expectation of a lower balance of trade, with an increase in imports, of US$ 239 billion to $249 billion in 2021.

The forecast of current transactions, which are the purchases and sales of goods and services and income transfers between Brazil and other countries, can be found in the Inflation Report , a quarterly publication by the BC, released today (16). In the document, the agency reduced the estimate of economic growth from 4.7% to 4.4% in relation to the previous report, in September.

According to the BC, the increase in the projected value of imports is associated with surprises in the rise in the prices of imported goods. “The difficulty of global supply chains in meeting demand has lasted longer than previously expected, with an impact on prices. Upside surprises in imported value are fairly widespread in intermediate goods, especially fertilizers, whose prices have shown a sharp increase in recent months. Fuel imports also continue at a strong pace, in an environment of domestic water crisis and high international prices”, says the report.

In exports, the forecast of a record value was maintained, from US$ 282 billion to US$ 284 billion. The revision reflects the still high level of commodity prices in the year, despite the retraction in the price of some products in recent months, especially iron ore. “There was again a slight improvement in the scenario for international sales of manufactured products, which should end the year at a level similar to that of 2019, with emphasis on fuel oils. Exports of semi-manufactured goods also point to a high value in 2021, with an emphasis on the prices of iron and steel products", explained the BC.

In the services account, the projection for a deficit of US$ 17 billion was maintained, below pre-pandemic levels, as a result of the slow return to international travel. The BC also highlights the lower expenses with rental of equipment in the oil sector, a consequence of the nationalization of oil platforms under Repetro, which is the regime that suspends the collection of federal taxes on exports and imports of goods for research and mining in oil and natural gas deposits, mainly exploration platforms.

“In primary income, the improvement in corporate profitability was reflected in net outlays on profits and dividends, also impacted by the incorporation of more recent information in the annual ordinary review of external sector statistics”, says BC. As a result, there was a slight increase in the expected deficit, from US$49 billion to US$51 billion.

Foreign investment

In case a country registers a negative balance in current transactions, it needs to cover the deficit with investments or loans abroad. The best way to finance the negative balance is Direct Investment in the Country (IDP), because the resources are applied in the productive sector.

The projection for net IDP inflows was reduced from US$ 55 billion to US$ 52 billion (3.2% of GDP) in 2021. In 2020, US$ 34.2 billion (2.38% of GDP) were registered of foreign investments in Brazil.

"Despite the recovery in capital participation being in line with expectations, the amortizations of intercompany operations [for example, when the parent company abroad invests in the branch in Brazil] has been greater than previously expected," explained BC.

For portfolio investments, the projection for the year of US$ 21 billion was maintained, which should register net inflows for the first time since 2015.

“The increase in Brazil's interest rate differential in relation to advanced economies increases the attractiveness of local debt instruments, attracting foreign flows to bonds issued in the country. On the other hand, foreign investment in shares of Brazilian companies has decreased in recent months, possibly impacted by fiscal uncertainties [control of public accounts] and by the recent fall in commodity prices”, says the report.

Forecast for 2022

The expected current account deficit in 2022 increased compared to the previous report, from US$14 billion to US$21 billion (1.3% of GDP), also due to the expectation of a lower trade balance. “The worsening expected value of exports [from $289 billion to $276 billion] reflects the recent deterioration in oil and iron ore prices. The perspective of shipped volume of these two products was also reduced, in line with lower expectations for domestic production”, explained the BC.

For imports, the drop in the projection, from US$ 229 billion to US$ 225 billion, mainly reflects weaker domestic activity than previously expected. Still in the scope of imports, the perspective is that, unlike 2021, there will be no significant amounts of operations under Repetro in 2022.

In the services account, the projection present in the previous report was maintained, at US$ 26 billion. “The increase in the expected deficit compared to 2021 reflects the gradual removal of restrictions on international travel, with an impact on travel and passenger transport accounts. However, due to the risks associated with covid-19, these accounts should still present, on average for the year, a level lower than the pre-pandemic level”.

In the primary income account, a result similar to that of 2021 is expected, around US$ 50 billion. Interest expenses should be slightly higher than expected, as a result of higher financing costs and more restrictive financial conditions in Brazil. "The projection of net profit expenses was marginally revised downwards, given the less favorable scenario for commodities and for domestic activity," added the BC.

Among the main liabilities of the financial account, the projection of a slight increase in the IDP in relation to 2021 was maintained. In this scenario, the IDP measured as a percentage of GDP is close to its historical average: 3.2% in 2021 and 3. 3% in 2022.

“The evolution of the privatization and concessions agenda can contribute to the flow of participation in the capital, which should gain importance in the total IDP. For portfolio investments, there was a reduction in the projection of net inflows, in line with the current high level of domestic economic uncertainty. On the other hand, the interest differential should continue to be the main factor of capital attraction for bonds in the country, even if mitigated as the process of monetary normalization in advanced economies unfolds”, says the report.

Text translated using artificial intelligence.