Privatization, Public Debt and Deficit in Brazil

Abstract

The use of privatization revenues to reduce the public debt aims to refrain an excessive accumulation of the latter, preventing that fiscal unbalances might push the debt too much, while the government implements the necessary measures to a long-lasting fiscal adjustment. The timing is important, because the adjustment measures can take some time to have the desired results. That is a reason why privatization is so important, working as an auxiliary instrument to the fiscal policy. This work analyzes the effects of the Brazilian privatization program on the public debt and deficit, focusing the period between 1995 and 1999. The main objective here is to evaluate whether the revenues obtained from the sale of public assets and public service concessions to lower the short-term debts have an expressive effect on the reduction - or restraint of growth - of the public debt and alteration of its structure, reflecting on the public sector borrowing requirements. As a possible additional contribution, this work presents a group of data, related to the state owned enterprises, to the privatization program, and to the public debt, considered of general interest. The analysis of the results shows that privatization contribution towards reducing the debt of the public sector and the effort of fiscal adjustment can be expressive, even in the short term. The reduction of the net public debt reached 8.4% of GDP, between 1995 and 1999, the state privatizations having contributed with 3.6% of GDP. The public sector borrowing requirements were reduced by 5.4% of GDP. In the same period, the Federal Treasury did not issue R$ 30.8 billion in short-term bond debts, as a result of the privatization program, and the savings with interest obtained from the use of privatization revenues in the recovery of this debt reached R$ 8.8 billion, in the prices of December 1999. The use of privatization revenues to reduce governmental debts, and the debts transferred to the private sector have effectively lowered the amount of interest payable upon the debt, its stock, and also the public deficit, in the period analyzed. Privatization has also contributed to the improvement of the debt structure, and to the restructuring of the liabilities of the public sector.