Brazil’s govt 2023 primary deficit forecast deteriorates, approaching fiscal target

BRASILIA (Reuters) – Brazil’s government projections for its public accounts in 2023 have substantially worsened, with the deficit before interest expenses now nearing the annual fiscal target, as indicated by its latest bimonthly revenue and expenditure report.

The projected primary deficit for the year has been expanded to 203.4 billion reais ($41.46 billion), up from the 141.4 billion reais calculated in September, considering the calculation methodology employed by the central bank, which is used to verify compliance with the annual fiscal target.

The updated estimate, prepared by the Planning and Finance ministries, positions the 2023 deficit at a level equivalent to 1.9% of the gross domestic product (GDP), up from the 1.3% shortfall seen in September, and very close to the 2.0% target set by the budget law.

The worsening situation follows a decrease of 22.2 billion reais in projected revenues for the year, coupled with a rise of 21.9 billion reais in expenses.

Unlike the Treasury’s methodology, that of the central bank does not permit the inclusion of 26 billion reais from untouched funds allocated to workers earning up to two minimum wages, known as PIS/PASEP, which had not been previously redeemed.

This amount was precisely what led the central government’s primary result, as calculated by the Treasury, to show a surplus in September, while the central bank reported a deficit for the same period.

New fiscal rules introduced by President Luiz Inacio Lula da Silva’s administration aimed at achieving a primary deficit equivalent to 0.5% of GDP this year. Nevertheless, members of the government’s economic team were long contemplating the feasibility of a 1% of GDP deficit, a goal that now appears increasingly challenging.

($1 = 4.9059 reais)

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