MercoPress. South Atlantic News Agency

Meirelles budget lower deficit objective prevails in the Temer administration

“It was not an easy process to come up with this target,” Meirelles told reporters. “It will require a tremendous effort from our end to achieve the goal.”

Brazil set a smaller 2017 primary deficit target than initially envisioned, in an attempt to show greater austerity after an increase in spending raised doubts about the government's fiscal discipline. The central government primary deficit target was set at 139 billion Reais (US$41.32 billion) for 2017, a figure well below the 160 billion Reais it initially considered.

 The primary deficit, or budget shortfall before interest debt payments, is a key gauge of a country's capacity to repay its debt.

Finance Minister Henrique Meirelles said the new target is realistic, despite a drop in revenues amid a crippling recession, but the government will continue to study whether it needs to raise taxes.

“It was not an easy process to come up with this target,” Meirelles told reporters. “It will require a tremendous effort from our end to achieve the goal.”

Interim President Michel Temer, who replaced suspended President Dilma Rousseff as she faces an impeachment trial for allegedly breaking budgetary rules, has vowed to shore up the country's finances after years of heavy spending.

The smaller-than-expected deficit for 2017 aims to convince wary investors that the Temer administration is committed to unpopular measures like reducing expenditures.

Many economists have criticized Temer for raising public expenditures this year with hefty wage increases for civil servants, social programs and a generous debt relief to cash-strapped states. A smaller deficit could tame inflation and pave the way for the central bank to cut interest rates.

The smaller deficit is a victory for Meirelles who faced resistance from other cabinet ministers who called for a larger shortfall to give more stimulus to a contracting economy.

Meirelles said public expenditures will have zero growth in 2017 in line with the proposed constitutional amendment to set a cap on expenditures.

Still, he added the government expects to raise an extra 55 billion reais in revenues with the sale of assets and concessions in 2017.

Meirelles, a former central bank chief widely respected on Wall Street, has promised more austerity, but so far has only unveiled measures to limit expenditures in the medium to long term.

The government expects a deficit of 170.5 billion reais this year, a record shortfall that some economists believe does not reflect any effort to cut expenditures. Brazil needs steep spending cuts and tax increases to reduce its debt burden that could top 80% of GDP in 2017, several analysts say