BRASILIA: Brazil fell way short of its main fiscal target in 2014, underscoring the daunting uphill battle that President Dilma Rousseff’s new economic team faces to shore up public accounts and prevent a credit rating downgrade.
Brazil posted a public sector primary budget deficit of 32.536 billion rais ($13.76 billion) for last year, equal to 0.63 percent of gross domestic product, the central bank said. That was the first annual budget gap since the current data series started in 2001.
The Rousseff administration originally aimed for a primary surplus, which represents the public sector’s excess revenue over expenditures before debt payments, of 99 billion reais, or the equivalent of 1.9 percent of GDP.
It later abandoned that target as tax revenues dwindled and public spending surged ahead of last October’s presidential election. Nevertheless, officials promised until the end of the year that the government would pursue “the biggest surplus possible.”
In 2013, Brazil posted a primary surplus of 91.3 billion reais.
Brazil needs to run solid budget surpluses to service its sizeable gross public debt, currently at 63.4 percent of GDP and on which it pays double-digit interest rates.
The country’s overall budget gap, which takes into account debt servicing costs, doubled in 2014 to 6.7 percent of GDP from 3.3 percent in the previous year. Citing concerns about Brazil’s deteriorating public finances, Standard & Poor’s and Moody’s Investors Service cut the country’s ratings outlook to “negative” last year in a sign of a potential downgrade.
The December fiscal results are the last under former Finance Minister Guido Mantega and Treasury Secretary Arno Augustin. Both left office at the end of the year with little credibility among investors after using what critics called “creative accounting” to doctor budget results.
Since then, Mantega’s replacement, Joaquim Levy, has raised taxes and frozen spending to convince investors that the government’s goal of saving 1.2 percent of GDP in 2015 is feasible.
Among the risks to Levy’s target are a potential economic recession, which could further dent tax revenues, and Rousseff’s fragile coalition in Congress, which could block attempts to reduce spending or raise taxes.
