Brazil raises primary deficit forecast for 2024 to $5.9 billion

Brazil’s government widened its primary deficit forecast for this year to 32.6 billion reais ($5.9 billion) on Monday, prompting a spending freeze to meet the fiscal target.

The shortfall, released in the Planning and Finance ministries’ bi-monthly revenue and expenditure report, corresponds to a primary deficit of 0.3 per cent of gross domestic product.

In May, when the last report was released, the forecast was for a primary deficit of 14.5 billion reais, or 0.1 per cent of GDP.

The fiscal target for this year is to eliminate the primary deficit, which excludes interest payments, with a tolerance margin of 0.25 percentage points of GDP in either direction. The government announced it will freeze 3.8 billion reais in expenditures to achieve this lower limit.

As the new fiscal framework approved by President Luiz Inacio Lula da Silva also caps spending growth, another 11.2 billion reais will be blocked to ensure full compliance.

This brings the total containment to the 15 billion reais announced by Finance Minister Fernando Haddad last week.

“We will achieve the best possible result, but if we stay within the tolerance band, the target will have been met,” said Treasury Secretary Rogerio Ceron. Speaking at a news conference, he said spending limits would be strictly observed throughout the year, emphasizing that the fiscal target is viable, and that there is no need to change it.

Members of the leftist government have consistently emphasized their commitment to staying within the fiscal goal this year, while private economists surveyed weekly by the central bank foresee a 0.7 per cent primary deficit.

Earlier on Monday, Lula said the government would freeze expenditures whenever necessary to meet the fiscal target.

The worsening fiscal outlook for the year mainly stemmed from a 20.7 billion reais increase in projected expenses, particularly for pension and social benefits. At the same time, the government lowered its expected net revenue by 13.2 billion reais.

The projected deficit excludes the 28.8 billion reais the government plans to spend addressing unprecedented flooding in the southernmost state of Rio Grande do Sul, which, by law, are not counted toward the fiscal target compliance.

In May, the government had anticipated a gap of $2,6 billion (R$14,5 billion) for this year, more than the estimate of $1,6 billion (R$9,3 billion) in March.

Brazil’s Finance Minister, Fernando Haddad, said last Thursday that the government will freeze around $2,7 billion (R$15 billion) in spending from this year’s budget to comply with the tolerance band, which is closely watched by investors, reported Bloomberg.

Estimates from economists at two major banks operating in Brazil suggest that the government would have required freezing at least twice the amount it did to eliminate the primary budget deficit in 2024.