Brazil Federal State-Owned Companies Post Record R$1.76 Billion August Surplus, First Positive Monthly Balance of 2024

Brazil’s federal state-owned enterprises (SOEs) recorded a primary surplus of R$1.76 billion (approximately $338 million) in August, marking their first positive monthly result of 2024 and the largest surplus ever registered for the month since the historical series began in 2001. The figures, released by the Banco Central do Brasil (Brazil’s Central Bank) on September 30, are an early indicator that the financial health of the state-owned sector is improving after a challenging start to the year.

The turnaround is significant for the federal government’s overall fiscal management, as the performance of the dozens of SOEs—which include giants in energy, banking, and infrastructure—directly impacts public accounts. Prior to August, the last time the federal SOEs posted a surplus was in December 2023, the last month of the previous year.

Despite the record August performance, the federal SOEs still carry an accumulated primary deficit of R$6.52 billion for the first eight months of 2024. This deficit means the companies’ non-financial expenses have outpaced their revenues so far this year. The August result, however, suggests that efforts to contain costs and improve operational efficiency are beginning to take effect, mitigating the political and economic risk associated with potential government-backed bailouts.

The Central Bank’s official fiscal statistics on SOEs are specific and include companies from the federal, state, and municipal spheres. Importantly, this data excludes some of Brazil’s largest state-controlled corporations like Petrobras and Eletrobras, which are often grouped with private companies due to their open capital and governance rules. The August result of R$1.76 billion applies only to the SOEs included in the Central Bank's narrow definition.

The financial balance of state-owned companies is a key bellwether for the government's capacity to manage its vast portfolio and execute public policy without straining the national budget. A strong operational result like the one seen in August reduces the likelihood of the government needing to step in with capital injections that would add pressure to the federal debt.

The focus for the rest of the year will be on whether the SOEs can sustain positive monthly results to significantly narrow the accumulated deficit, a crucial step for the Brazil economy as it seeks to stabilize public finances and meet its fiscal targets.

What it touches

The financial performance of the overall federal state-owned enterprises sector is a core driver for their publicly traded stocks. The positive fiscal balance signals improved operational results for listed entities majority-owned by the government, such as the oil giant Petrobras (PETR4) and the federal bank Banco do Brasil (BBAS3). The improved fiscal outlook for the SOE sector generally reduces systemic risk for investors in Brazilian government assets.