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Montevideo, November 21st 2018 - 10:45 UTC

Brazil slashes fiscal savings' goals for 2015 and 2016 on plunging tax revenue

Thursday, July 23rd 2015 - 08:02 UTC
Full article 8 comments
“The target revision should not be taken as a sign that we are abandoning the fiscal adjustment” said Finance Minister Joaquim Levy “The target revision should not be taken as a sign that we are abandoning the fiscal adjustment” said Finance Minister Joaquim Levy
The government of president Rousseff plans to cut its 2016 primary surplus goal to 0.7% of GDP from 2% and to 1.3% for 2017. The government of president Rousseff plans to cut its 2016 primary surplus goal to 0.7% of GDP from 2% and to 1.3% for 2017.
The steeper-than-expected cuts in the primary surplus targets could complicate Rousseff's bid to regain the confidence of investors The steeper-than-expected cuts in the primary surplus targets could complicate Rousseff's bid to regain the confidence of investors

Brazil dramatically lowered its fiscal savings goals for 2015 and 2016 on Wednesday due to plunging tax revenues, and announced new spending cuts to underscore its commitment to austerity. The government cut its primary surplus goal for this year to 8.7 billion reais ($2.70 billion), or 0.15% of GDP, from 66.3 billion reais, the equivalent of 1.1% of GDP, originally budgeted.

 The primary surplus, or revenue available to meet interest payments on debt, is closely watched by markets and credit rating agencies as a gauge of a country's capacity to repay its debt. The agencies have warned they may further downgrade Brazil, a move which could undermine investor confidence and raise borrowing costs.

The steeper-than-expected cuts in the primary surplus targets could complicate President Dilma Rousseff's bid to regain the confidence of investors as Latin America's largest economy heads into its worst recession in 25 years.

“The target revision should not be taken as a sign that we are abandoning the fiscal adjustment,” Finance Minister Joaquim Levy told reporters in a presentation. “We are committed to fiscal discipline.”

The government cut its 2016 primary surplus goal to 0.7% of GDP from 2% and to 1.3% for 2017.

Until a few years ago Brazil maintained primary surpluses above 3% of GDP as tighter spending controls and a commodities bonanza filled public coffers. That changed when Rousseff took office in 2011 and granted billions of dollars worth of tax breaks to businesses in a failed attempt to restart stagnant economic growth.

Levy said additional budget cuts of nearly 9 billion reais for this year were proof that fiscal belt-tightening is here to stay, despite political pressure to ease the adjustment.

Rousseff is struggling with record-low popularity as the economy slides and a widening corruption scandal at state-run oil firm Petrobras nears her inner circle of advisers. She is also facing a rebellious alliance in Congress that has watered down many of her cost-cutting measures.

The government acknowledged that it was prepared to slash the savings goal further if revenues continue to disappoint.

“My take is that it will be an eye opening call about severe difficulties on the fiscal front,” Alexandre Schwartsman, a former central bank director, said in a note. “Nothing good can come out of it.”

With the target revisions the government now estimates that Brazil's gross debt-to-GDP ratio will only start to fall in 2018 given the weaker fiscal results.

Categories: Economy, Politics, Brazil.

Top Comments

Disclaimer & comment rules
  • yankeeboy

    Junk Bond status coming.

    This is still only the beginning of the recession...
    Plenty more bad news stories will be rolling out shortly

    Jul 23rd, 2015 - 11:30 am 0
  • Conqueror

    Falling tax revenues. Why would that be? Is this where the dosh from the Petrobras frauds was fed into the government's coffers? Slide it in for the sake of the figues and then take it out again when no-one's looking. Who actually checks whether the primary surplus from 2010 is still there?

    Jul 23rd, 2015 - 02:12 pm 0
  • ChrisR

    Brazil is fast earning it's reputation for being a bunch of crooks and it thought it was doing so well just three years ago.

    Pity DumbAss kept on The Liar Mantega as Finance Minister for far too long after he lied to the markets and single handedly caused a rush to capital flight.

    Then she fucked Mr market over by insisting the banks MUST lend the deadbeats money to buy cars and keep that industry going AND the result is: In First Place, the Prize for the International FUBAR of the decade goes to Brazil.

    Junk status within SIX MONTHS!

    Jul 23rd, 2015 - 06:43 pm 0
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