Brazil’s new economic team projects the largest budget deficit before interest payments on record this year, underscoring the challenge acting president Michel Temer will face in turning around Latin America’s biggest economy.
Temer’s administration will submit a bill that would allow it to report a primary budget gap of 170.5 billion reais ($48.4 billion) in 2016, Finance Minister Henrique Meirelles said Friday. The estimate is realistic and transparent, and doesn’t include possible spending cuts and revenue increases that require congressional approval, he said. It’s for the central government only, meaning it doesn’t take into consideration state or city budgets, Bloomberg reported.
The previous administration, led by Dilma Rousseff, originally expected to post a primary surplus for the central government of 24 billion reals in 2016, though it asked Congress in March to reduce the target to a surplus of 2.8 billion reais. Rousseff said at the time the primary budget result could go as low as a deficit of 97 billion reais if revenue fell short of forecast.
Unlike the previous government, the Temer administration doesn’t expect to revise its fiscal target numerous times throughout the year, said Budget Minister Romero Juca. It will instead try to continuously improve the bottom line.
Investors use Brazil’s primary budget result to gauge the country’s fiscal health and its ability to service debt. The country last year lost its investment-grade status after the three major rating companies expressed growing concern over government finances. If lawmakers don’t approve the administration’s request, it would have to cut spending further or risk missing its target and violating fiscal laws. Meirelles said he expects Congress to approve the new target by May 25.
