Brazil’s government improves fiscal outlook for year by Reuters

BRASILIA (Reuters) – Brazil’s government slightly cut its expected primary deficit for the current fiscal year on Friday evening, crediting the review with improved revenues that more than offset the need for another spending freeze to ensure compliance with a spending ceiling.

In their bimonthly revenue and expenditure report, the planning and finance ministries revised the estimated primary deficit for 2024 to 28.3 billion reais ($5.13 billion).

The figure remains within the zero deficit fiscal target for the year with a margin of tolerance of 0.25 percentage points of GDP in both directions, which allows for a deficit of up to 28.8 billion reais.

In the July report, the deficit was estimated at just 28.8 billion reais, taking into account the effects of the total spending freeze of 15 billion reais that ministries had said would be necessary at the time.

Now, the need to freeze spending has dropped to 13.3 billion reais, they said.

This is partly due to the reversal of a previously frozen 3.8 billion reais that had been blocked two months ago due to lower revenue expectations.

The government has now upgraded its revenue forecast, driven mainly by a recent law implementing measures to offset a costly payroll tax break and the expectation of higher dividends.

At the same time, the government announced the need to freeze 2.1 billion reais in additional spending this year to comply with current budget rules that limit spending growth.

Under the new fiscal framework approved by President Luiz Inacio Lula da Silva last year, spending can only rise 2.5 percent above inflation in 2024.

In practice, this means that when estimates for mandatory spending rise, the government must cut other spending to stay within the cap.

The planning and finance ministries said the new move was needed to offset rising social security forecasts this year, which many economists said the government had already underestimated.

($1 = 5.5143 reais)