Brazil’s Government Enhances Fiscal Outlook for the Year, According to Reuters

BRASILIA (Reuters) – The Brazilian government has slightly lowered its expected primary deficit for the current fiscal year, stating that better-than-anticipated revenues have offset the need for an expenditure freeze to comply with a spending limit.

In their latest bi-monthly report on revenue and expenditures, the Planning and Finance ministries revised the primary deficit forecast for 2024 to 28.3 billion reais (approximately $5.13 billion).

This figure falls within the fiscal target of no deficit for the year, allowing for a tolerance margin of 0.25 percentage points of GDP in either direction, which means that a shortfall of up to 28.8 billion reais is permissible.

Previously, in July, the estimated deficit was set at 28.8 billion reais, which included the impact of a total spending freeze of 15 billion reais deemed necessary at that time.

Currently, the required spending freeze has been adjusted to 13.3 billion reais, as reported by the ministries. This change is partly due to the reversal of a previously frozen amount of 3.8 billion reais that had been blocked two months earlier because of reduced revenue expectations.

The government has improved its revenue forecasts, primarily due to a new law aimed at countering the financial impact of a costly payroll tax exemption, along with expectations of increased dividends.

However, the government also announced an additional need to freeze 2.1 billion reais in spending this year to adhere to current budgetary rules which restrict the growth of expenditure.

Under the new fiscal framework approved by President Luiz Inacio Lula da Silva last year, spending is only allowed to grow by 2.5% above inflation in 2024. This means that when estimates for mandatory expenditures rise, the government must cut other spending to remain compliant with the limit.

The Planning and Finance ministries indicated that this latest action is necessary to account for rising projections for social security expenditures this year, which many economists believe have been underestimated by the government.