Brazil’s central government’s primary budget deficit narrowed in March thanks to aggressive cuts in discretionary spending, the Treasury said on Monday, although it warned that public finances were still at risk from pension commitments and weak revenues.
The deficit before interest payments are taken into account narrowed to 21.1 billion reais (US$ 5.38 billion) from 24.5 billion reais the same month last year, marking a reduction of 13.8% in nominal terms and 17.6% in real terms.
The social security shortfall in March was 22.6 billion reais, some 12.3% higher than the same month a year ago, bringing the social security deficit in the first three months of the year to 51.8 billion reais. In the first quarter last year it was 51.6 billion reais
The accumulated primary deficit in the first quarter stood at 9.3 billion reais, narrower than the 12.9 billion in the first three months of last year, the Treasury said.
But despite this improvement, the forecast for the year is of a central government primary deficit of around 139 billion reais, wider than last year’s 120 billion reais, it said.
“This is a temporary improvement,” Mansueto Almeida, Secretary of the Treasury, told reporters, echoing the accompanying Treasury report that Brazil’s fiscal challenges remained “significant.”
“The problem this year is not spending, but revenue,” he said, noting that discretionary spending was being cut across government in line with its strict spending goals. Non-discretionary spending, of which social security forms a huge chunk, remains high, however.
Almeida said discretionary spending had fallen 2.6% in real terms since March 2010, during which time non-discretionary spending had soared 38.1%.
The Treasury and central bank posted a 1.5 billion reais surplus in March, compared with a 4.4 billion reais deficit in March last year, bringing the surplus over the first three months of the year up to 42.7 billion reais from 38.3 billion a year ago.
Brazil’s total social security deficit in the 12 months to March, which includes private sector, civil service and military personnel, totaled 294.2 billion reais, on track to end the year around 315 billion reais, or 4.3% of GDP, the Treasury said.