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Brazil tries to calm markets with healthy ’13 fiscal data Primary surplus little more than 1.5 pct of GDP

BRASILIA, Jan 3, (RTRS): Brazilian President Dilma Rousseff’s government pledged on Friday to keep spending under control this year despite a general election and sought to calm market jitters over a possible credit downgrade with healthy fiscal results for 2013. Finance Minister Guido Mantega said Brazil’s central government exceeded its primary fiscal surplus target for 2013 of 73 billion reais ($30.47 billion) thanks to higher tax collection and stronger economic growth. The primary surplus is the excess of revenue over expenditure before debt payments. Preliminary data shows that the government’s primary surplus totaled about 75 billion reais for the year, a little more than 1.5 percent of gross domestic product, Mantega said. The government brought forward the announcement of 2013 fiscal results to soothe markets’ anxiety over the financial soundness of the world’s seventh largest economy.

“It would not be good to keep analyst expectations hanging until the end of January. This will calm nerves,” Mantega said in a news conference, adding that the Brazilian economy is on the upswing with investment and consumption on the rise. The South American nation, however, is not expected to meet its consolidated primary fiscal target, which includes state and city governments, which was set at 111 billion reais for 2013. The primary surplus helps show how much money the government can set aside to pay maturing debt without borrowing more. It is watched closely by investors as a gauge of fiscal health.

Brazil’s public finances have been deteriorating since its once-booming economy slowed to a crawl two years ago. Economists do not expect the Rousseff administration to rein in spending as October’s presidential election approaches. She is widely expected to seek a second term. In 2013, Rousseff relied heavily on billions of dollars in extraordinary revenue from corporate back-tax settlements and bonuses from oil-rights auctions to make up for weak fiscal results, a situation that has worried investors and raised the specter of a credit downgrade.

Mantega said Rousseff’s government is committed to keeping spending under control in 2014 and will announce annual budget-freeze details in February. Brazil will pursue a primary budget surplus target for this year that will keep its debt/GDP ratio on a downward path, he said. “Tax collection is growing in the last few months, despite the tax cuts we made, reflecting the increase in economic activity,” Mantega said. He said tax revenue in December was a record. Investments in the Brazilian economy grew around 6.5 percent in 2013 and investment as a percentage of GDP ended the year above 19 percent, Mantega said. He said infrastructure concessions will drive up investment in 2014.

Lowered
Rousseff’s government lowered its consolidated primary surplus target for 2013 as it granted tax breaks to boost growth. It also increased public spending savings and put pressure on the central bank to raise interest rates to contain inflation, a move that caused debt costs to rise. It started with a goal of 3.1 percent of GDP and cut that to 2.3 percent, but will likely come in at around 2 pct. Facing spending pressures in an election year, the government plans to announced a consolidated primary surplus goal of about 2 pct of GDP for 2014, government officials told Reuters. That figure is considered enough to keep Brazil’s net debt, which excludes international reserves, on the downward path of recent years. The country’s net debt has almost halved in the last decade to 33.9 percent of GDP in November.

Rousseff has promised to rein in spending. However, many economists believe Brazil needs deep reforms to slash current expenditures and lower future pension payments, which some see as a time bomb in a country whose work force is growing older. Brazil missed its primary surplus goal in 2012. A series of accounting changes were used to improve government fiscal numbers but undermined the credibility of Rousseff’s economic team. Standard & Poor’s put Brazil’s rating on negative outlook in June, and Moody’s lowered its outlook from positive to stable in October, citing deteriorating debt and investment ratios and slow growth.
Brazil is currently rated “Baa2” by Moody’s and “BBB” by Standard & Poor’s. Under both systems, Brazil’s rating would have to drop two notches to lose its investment-grade status. Many large investors can only invest in investment-grade securities and lower-rated debt usually pays higher interest.

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