Brazil plans steeper reduction of key fiscal target

The Brazilian government has further lowered its primary budget surplus target for this year, according to an official document obtained by Reuters on Tuesday, signaling it will continue to bolster spending to support a still timid economic recovery.

Brazil plans steeper reduction of key fiscal target

World Bulletin/News Desk

The Brazilian government has further lowered its primary budget surplus target for this year, according to an official document obtained by Reuters on Tuesday, signaling it will continue to bolster spending to support a still timid economic recovery.

In a budget report due to be released on Wednesday, the government said it plans to deduct 45 billion reais ($22.06 billion) from its primary surplus goal.

In its original budget, the government planned to exclude up to 20 billion reais from the primary target. Considered a measure of the country's capability to repay its debt, the primary budget surplus is the public sector's revenues minus expenditures excluding debt payments.

The government had set 155.9 billion reais as its primary surplus target for the year, or the equivalent to 3.1 percent of the gross domestic product. The government also said that changes to the budget allow it to exclude up to 65 billion reais from the target, but that lingering uncertainties in the world economy will prevent it from using all that amount.

The use of accounting gimmicks to meet fiscal goals has worried some analysts who say the government's lack of transparency has hit investors' confidence in Latin America's top economy.

"We have a rule that has lost its meaning," Moody's Investors Service senior credit officer Mauro Leos said at the Reuters Latin AmericaInvestment Summit. "The primary surplus goal is a reflection of some of the communication problems that the government is having."

President Dilma Rousseff's government has increased spending and foregone billions of dollars in tax breaks in a bid to avoid a third year of mediocre economic growth. The Brazilian economy grew a meager 0.9 percent last year after expanding a red-hot 7.5 percent in 2010.

The more expansionary fiscal stance could erode one of the main pillars of the Brazilian economy and further stoke inflation that is already near the ceiling of the official target of 4.5 percent plus or minus 2 percentage points.

The country's tough fiscal saving rules helped stabilize an economy that only two decades ago was battered by repeated crises.

The government, which missed its primary target in 2012, has said the pace of the economic recovery will dictate fiscal policy this year.

Under the current law, Brazil can deduct investments from its flagship infrastructure program, PAC, as well as tax incentives it has applied to revive activity. Several organizations, including the International Monetary Fund, do not recognize that alternative accounting method.

Rousseff also changed the budget to further relax the fiscal rules by allowing states and municipalities to deduct investments and tax breaks from their own primary targets. She has also ended the central government's obligation make up state and municipalities' fiscal shortfalls.

In the report, the government raised its inflation forecast to 5.2 percent this year from a previous estimate of 4.9 percent. It also maintained its projection for economic growth of 3.5 percent this year.
($1 = 2.0395 Brazilian reals)

Last Mod: 22 Mayıs 2013, 10:47
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