Brazil’s Fiscal Deficit Revised

BRASILIA (Reuters) – Brazil’s government has slightly reduced its primary deficit forecast for the current fiscal year due to improved revenues that surpassed the need for a new spending freeze.

In their bi-monthly report, the Planning and Finance ministries revised the 2024 primary deficit forecast to 28.3 billion reais ($5.13 billion). This figure remains within a fiscal target of a zero deficit, allowing for a shortfall of up to 28.8 billion reais.

Previously, the estimated deficit was 28.8 billion reais, accounting for a spending freeze of 15 billion reais. However, the need for such a freeze has been reduced to 13.3 billion reais. This change stems partly from the reversal of a 3.8 billion reais freeze imposed two months ago due to lower revenue expectations.

The government has improved its revenue projections, bolstered by a new law addressing a payroll tax exemption and expectations of larger dividends. In addition, there’s a need to block 2.1 billion reais in extra spending within the current budgetary rules, which control expenditure growth.

Under a new fiscal framework approved by President Luiz Inacio Lula da Silva last year, spending increases are capped at 2.5% above inflation for 2024. Therefore, any rise in mandatory expenditure estimates necessitates cuts in other areas to adhere to the cap.

The ministries indicated that the adjustment was imperative to manage increased social security projections, which many economists believe were previously underestimated.

($1 = 5.5143 reais)