Brazil sees massive fiscal gap, plans austerity measures

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Brazil sees massive fiscal gap, plans austerity measures

6:56 CAT | 23 May 2016

A worker pushes boxes with food at a street market in Rio de Janeiro, Brazil, May 6, 2016. REUTERS/Pilar Olivares

Reters / A worker pushes boxes with food at a street market in Rio de Janeiro, Brazil, May 6, 2016.

The Brazilian government expects a record budget shortfall this year as a two-year recession drags down revenues, but policymakers vowed new austerity measures to regain investors’ confidence in the once-booming economy.

The federal government’s primary budget deficit could reach a staggering 170.5 billion reais ($48.7 billion) in 2016, or the equivalent of 2.75 percent of gross domestic product. Last year the government posted a record deficit of 1.94 percent of GDP.

The new shortfall estimate will be the administration’s primary deficit target, which needs congressional approval before the end of the month to avoid a government shutdown. The primary balance, which represents revenues minus expenditures before debt interest payments, is a closely watched gauge of creditworthiness.

Finance Minister Henrique Meirelles said the target could be reduced if Congress approves austerity measures to be proposed by the government in coming weeks.

He declined to detail the measures, but said they will help initially stabilize the growing debt burden and later reduce it to ease investors’ fears over the country’s financial health.

Meirelles, a former central bank chief respected on Wall Street, was appointed last week by interim President Michel Temer to plug an overall budget deficit that ballooned to 10 percent of GDP and cost Brazil its coveted investment grade rating last year.

“We will work with a target lower than what we announced,” Meirelles said in a press briefing. “This is a realistic and transparent target.”

He did not rule out future tax hikes, but said the new measures will focus on better use of public funds.

The Temer administration has accused the previous government of hiding a series of fiscal liabilities that inflated the primary deficit.

Suspended President Dilma Rousseff had estimated a deficit

of 97 billion reais for this year.

A sharp fall in the price of commodities and years of heavy spending under Rousseff have deteriorated Brazil’s fiscal accounts, which once enjoyed hefty surpluses.

Planning Minister Romero Juca, who also took part in the press conference, said he is confident Congress will approve the new fiscal target next week.

Source: Reuters