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Brazil’s Government Forecasts Bigger Primary Budget Deficit This Year

Brazil’s planning ministry raised its estimate for the country’s primary budget deficit this year, the first of President Luiz Inacio Lula da Silva’s administration, foreseeing higher expenses and reduced revenues.

According to the government’s latest bi-monthly revenue and expenditure report, the budget shortfall is now estimated at 145.4 billion reais ($30.5 billion) for the central government this year, equivalent to 1.4% of gross domestic product (GDP), up from a forecast in May of 136.2 billion reais.

The revised figures stem from increased projected expenses, which have risen by 7.2 billion reais in comparison to the previous report, coupled with a decline in revenues that have been trimmed by 2 billion reais.

The budget forecast is still notably lower than the primary deficit target of 228.1 billion reais as mandated by the Brazilian government’s annual budget law, which applies to the country’s Treasury, central bank, and social security spending.

Since Lula, a leftist, took office in January, his Finance Minister Fernando Haddad has implemented revenue-rebuilding measures to reduce the deficit, including re-imposing federal taxes on fuels and closing tax loopholes.

However, following the presentation of new fiscal rules indicating the government’s intention to end this year with a primary deficit equivalent to 0.5% of GDP, members of the government’s economic team have started to acknowledge that the shortfall may be around 1% of GDP.

Budget secretary Paulo Bijos described the goal as “challenging, but credible” at a news conference on Friday.

The fiscal rules await a final vote in the lower house of Brazil’s Congress.

Until that happens, the government must adhere to the constitutional spending cap, which restricts expenses growth to the previous year’s inflation rate. To do so, the report has indicated the need to freeze 3.2 billion reais in expenditures, up 1.5 billion reais from the latest report. ($1 = 4.7705 reais) (Reporting by Marcela Ayres; Editing by Steven Grattan, Paul Simao; Editing by Sharon Singleton)

Source : Yahoo