World Economy

Brazil Admits to $8b Deficit in 2016 Budget

Brazil Admits to $8b Deficit in 2016 Budget Brazil Admits to $8b Deficit in 2016 Budget

The Brazilian government sent a proposal to the Congress for the 2016 federal budget, which foresees a deficit of 30.5 billion reais ($8.4 billion). The amount is equivalent to 0.5% of the country’s gross domestic product.

Also, the proposal estimates an inflation rate of 5.4% for 2016, surpassing the 4.5% inflation target but remaining below the 6.5% upper limit of the target, as well as a GDP growth rate of 0.2%, Xinhua reported.

Planning and Budget Minister Nelson Barbosa said the government will keep working on improving the public accounts through new concessions to the public sector and tax hikes.

Meanwhile, the government itself is also downsizing, for example by proceeding with plans to reduce the number of ministries and other cabinet offices. There are 39 offices at the moment.

“We know where we want to go, and we know how we will get there: through reforms, through making Brazil fairer and more efficient,” Finance Minister Joaquim Levy said.

Vice President Michel Temer said that by admitting the deficit, the government is not trying to “put on make-up” on the budget.

 Enters Recession

Brazil has entered recession after official figures showed the country’s economy contracted by 1.9% between April and June compared with the previous three months. Analysts had expected a contraction, but the number was worse than expected, BBC reported recently.

First quarter output was also revised down to show a 0.7%, rather than a 0.2%, contraction.

The country, the seventh-largest economy in the world, has seen economic growth fall sharply in recent times. This is due in part to low commodity prices and sluggish global growth.

High interest rates–currently 14.25%–have also affected consumer spending, an important element of Brazil’s economy, while this year, the government has introduced stringent austerity measures designed to tackle high levels of debt.

Government spending, including on unemployment benefits, has fallen sharply, while taxes have risen.

In the second quarter, household spending fell by 2.1% compared with the previous three months. The biggest falls came in the industrial sector, where construction output fell 8.4%

Transport, storage, postal services, financial services and insurance all saw falls in output.

Compared with a year earlier, the economy as a whole shrank by 2.6%.

The technical definition of a recession is two consecutive quarters of economic contraction.