Brazil’s budget surplus before interest payments narrowed in August to its lowest in nine months even as the central bank relies on fiscal policy to help fight the fastest inflation in six years.
The primary surplus, which includes federal and local governments as well as state companies, fell to 4.6 billion Real (2.5 billion dollars) from 13.8 billion Real in July, the central bank said in a statement distributed Friday in Brasilia.
The central bank on Thursday also downgraded the country’s growth projection for 2011 from 4% to 3.5%.
The Brazilian government must help the central bank combat inflation and lower rates by “holding the line” on spending and keeping Brazil’s fiscal house in order, central bank President Alexandre Tombini said in Washington last week. The government earlier this year cut 50.7 billion Real from its 2011 budget.
Tombini raised Brazil’s benchmark interest rate five times this year before cutting it a half point to 12% on Aug. 31 even as annual inflation through mid-September ran at 7.33%, the fastest in six years. The central bank targets inflation of 4.5% plus or minus two percentage points.
After interest payments, the budget deficit was 17.1 billion Real, its highest since March 2010. The central government posted a deficit of 17.2 billion Real, while regional governments posted a 0.6 billion Real surplus and state companies had a deficit of 0.46 billion Real.
President Dilma Rousseff’s 2012 budget proposal, presented to congress last month, targets a budget surplus before interest payments of 139.8 billion Real for the federal, state and local governments, the equivalent of 3.1% of GDP.
The federal government may receive less money from oil exploration as congress redefines its rules for distributing royalties. The federal government will reduce its income from oil royalties and a tax on highly productive fields by 1.8 billion Real to help reach an accord on how to share the royalties with non-producing states, O Estado de S. Paulo reported this week without saying where it got the information.
Brazil’s economic growth slowed last quarter to 3.2% from a year earlier, down from 4.2% in the first quarter and 7.5% last year, the fastest pace in two decades. The central bank in its latest report lowered its projection for economic growth this year from 4% to 3.5% due to the worsening global economic outlook.
No country is immune to the consequences of the crisis, President Dilma Rousseff said in a television interview on Thursday, but insisted her government was working hard so that Brazil's economy would be better protected.
The fact that Brazilians are consuming, have income, have work -- that will protect Brazil, she said.
The bank said the deterioration in the international outlook and the more restrictive fiscal policies adopted by the government were factors in the downward revision. It also raised its 2011 inflation forecast to 6.4% from its June estimate of 5.8%.
The bank said inflation peaked in August at 7.23 percent. For 2012, the bank estimates that inflation will fall to 4.7% and that by the third quarter of 2013 will hit the 4.5% goal.
The bank's Monetary Policy Committee thinks that there could be further moderate cuts to the basic interest rate, which was lowered in August from 12.5% to 12%.