MercoPress. South Atlantic News Agency

Mantega releases crucial data to calm market anxiety about Brazil's accounts

The minister is off on holidays Monday but just in case the announcements “will help to calm nerves”

Brazil's Finance Minister Guido Mantega insisted on Friday that the government is keeping spending under control as he sought to calm anxiety about the deterioration of the government's accounts. The minister said the primary budget surplus, (excess of revenue over expenditure before debt payments) would be above the goal of 73 billion Brazilian Reais for 2013 (30.5bn dollars), equivalent to about 1.5% of gross domestic product.

 “We met our fiscal result and we did a little bit more than 1.5% of GDP,” Mr. Mantega told reporters at a news conference in Brasilia, underlining that this was due to higher tax collection and stronger economic growth.

Normally the minister releases the fiscal year's numbers at the end of January on the return of holidays. Mantega is off on Monday and said that the final result for the year, which will include the accounts of state and municipal governments, will be published later this month and spending forecasts for 2014 in early February.

“It would not be good to keep analyst expectations hanging until the end of January. This will calm nerves,” Mantega said at the news conference in Brasilia adding that the Brazilian economy is on the upswing with investment and consumption on the rise.

Critics argue that the government was only able to meet the target last year because of a number of large, extraordinary revenues for the government. Some 15 billion Reais came from the auction of a huge oil field, while another 20 billion Reais came from the settlement of some long-standing tax disputes.

Economists argue the government needs to be able to save around 2% of GDP every year over the long run if it is to keep debt levels stable.

Mr. Mantega said the government usually collects extraordinary revenues in any given year, and that the state also had to deal with some extraordinary spending efforts as well. He said tax revenues are rising as the economy recovers from three years of subpar growth. He said revenues rose to a record level of 116 billion Reais in December even those actual tax levels are down.

Moreover, there were extraordinary costs, he said. The government paid out about 9 billion Reais last year to compensate electric companies for higher costs, he said. Another 9 billion Reais has been set aside for 2014 but that may not all be spent as hydroelectric reservoirs are filling up, he said.

Brazil gets about four-fifths of its power from hydroelectric plants but a prolonged dry spell last year meant many of these plants weren't able to generate all the energy Brazil needs. To remedy that, the government fired up most of its oil- and natural-gas fired power plants, which cost much more to operate than hydroelectric dams.

The minister said “conditions are in place” for economic growth to accelerate in 2014, largely as a result of the expected growth of the global economy. “We are on a positive trajectory for the Brazilian economy”.

Regarding investment the minister it had risen above 19% of GDP in 2013, although he admitted this included several oil platforms built for the government-run Petrobras.

Mantega pledged the government would continue to rein in general spending costs, although he said spending on health and education would continue to rise. However economists do not expect the administration to rein in spending as October's presidential election approaches and President Dilma Rousseff is widely expected to seek a second term.

Meanwhile, Mr. Mantega said that the continuing depreciation of the Brazilian Real seems to have had little effect on inflation. There are some concerns that the weaker Brazilian Real could drive up the cost of imports, in turn pressuring inflation.

But for the minister the Brazilian currency market is more liquid and sophisticated than in other emerging market countries, which means it can be more volatile. Overall, he said, the currency has depreciated in line with other emerging markets.

Mr. Mantega said that the government doesn't plan to extend a financial transactions tax known as IOF on more international transactions. Last week, the government extended a tax on prepaid cards used to make purchases overseas, which the minister said was an attempt to reduce the amount Brazilians spend abroad.

In 2013, Brazilians spent 23 billion dollars overseas and “we want to avoid exaggerations,” he said.

Finally it must be mentioned that the Rousseff government lowered its consolidated primary surplus target for 2013 as it granted tax breaks to boost growth. It also increased public spending savings and put pressure on the central bank to raise interest rates to contain inflation, a move that caused debt costs to rise.

It started with a goal of 3.1% of GDP and cut that to 2.3%, but will likely come in at around 2%. Brazil missed its primary surplus goal in 2012. A series of accounting changes were used to improve government fiscal numbers but undermined the credibility of Rousseff's economic team.