Brazil’s government improves fiscal outlook for the year By Reuters

BRASILIA (Reuters) – Brazil’s government slightly reduced the expected primary deficit for the current fiscal year late on Friday, attributing the revision to improved revenues that more than offset the need for a new expenditure freeze to ensure compliance with a spending cap.

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

The figure remains within the fiscal target of a zero deficit for the year with a tolerance margin of 0.25 percentage points of GDP in either direction, which allows for a shortfall of up to 28.8 billion reais.

In the July report, the deficit was estimated precisely at 28.8 billion reais, factoring in the effects of a total spending freeze of 15 billion reais that the ministries had stated would be necessary at the time.

Now, the need to block spending has dropped to 13.3 billion reais, they said.

This is partly due to the reversal of a previously frozen 3.8 billion reais, which had been blocked two months ago due to lower revenue expectations.

The government now has improved its revenue projections, driven mainly by a recent law implementing measures to offset a costly payroll tax exemption and the expectation of larger dividends.

At the same time, the government announced the need to block an additional 2.1 billion reais in spending this year to meet current budgetary rules that limit expenditure growth.

Under the new fiscal framework approved by President Luiz Inacio Lula da Silva last year, spending can only increase by 2.5% above inflation in 2024.

In practice, this means that when estimates for mandatory expenditures rise, the government must cut other spending to stay within the cap.

The Planning and Finance ministries said the new move was necessary to offset rising projections for social security this year, which many economists said the government had already underestimated.

($1 = 5.5143 reais)