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Brazil's primary surplus planned to drop to 3.75% of GDP

Thursday, February 15th 2007 - 20:00 UTC
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Brazil posted a 4.32% of GDP primary surplus in 2006 compared to 4.83% in 2005 revealed the country's Central Bank. The savings are equivalent to 41 billion US dollars.

Last year was the fourth running that Brazil under President Luiz Inacio Lula da Silva managed a primary surplus above 4%; in 2003, 4.25%; in 2004, 4.59%; in 2005, 4.83% and last year's 4.32%. On taking office in 2003, the Socialist Lula da Silva administration raised the primary surplus target from 3.75% to 4.25% to give markets a clear fiscal austerity message besides averting any chances of a debt moratorium scare. Last year's primary surplus was made up of 2.46% by the federal government, Central Bank and Social Security system; states and municipalities contributed with 0.94% and government owned corporations, 0.91%. However the savings were insufficient to cover total debt interest payments which last year totaled 73.4 billion US dollars equivalent to 7.66% of GDP, but down from the 8.11% of GDP in 2005, points out the Central Bank. The budget nominal result, including interest payments, registered in 2006 (an electoral year) a deficit equivalent to 3.35% of GDP compared to 3.28% in 2005. For his second mandate which begun January 2007, Lula da Silva has talked about reducing the primary surplus 0.5 to the original 3.75% of GDP with the purpose of significant investments in housing, water and sewage works. A project originally agreed with the IMF,but Brazil's Finance minister pointed out that in spite of the public works initiative the government will continue with its policy of reducing the debt/GDP relation, among other reasons because of lower interest rates as the country's risk rating improves. Brazil's public debt (domestic and international) totaled at the end of December 2006 the equivalent of 489.5 billion US dollars or 50% of the country's GDP compared to 51.5% of GDP in December 2005, according to the Central Bank. Debt/GDP relation climbed to 55.5% at the end of 2002 to 57.2% at the end of 2003, but later dropped to 51.7% in 2004, 51.5% in 2005 and 50% in 2006. The four year plan presented by President Lula da Silva on taking office for a second mandate estimates the relation to drop to 48.3% by the end of 2007 and by 2010 should be in the range of 39.7% of GDP. The plan spurred by significant public and private investments in infrastructure also anticipates a progressive return to a balanced budget with the overall deficit dropping to 1.9% of GDP this year and 0.2% by 2010. Although Brazil's growth in the first four years of Lula da Silva's administration was below that of other large emerging countries, (0.9% in 2003; 4.9% in 2004; 2.3% in 2005 and 2.7% in 2006), the announced plan forecasts 4.5% growth this year and 5% beginning 2008. The political reading of Lula's development program for the his second mandate, according to market analysts, shows a clear turn from the orthodox policies of former minister Antonio Palocci and is geared to satisfy "domestic industrial interests and the left wing hard core of the ruling Workers Party which blames meager economic growth to four years running of adjustment policies".

Categories: Economy, Brazil.

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