Brazil Frees Up $4b in Gov’t Spending

Brazil’s government has freed up 12.8 billion reais ($4.1 billion) in spending this year to avoid a potential shutdown, the planning ministry said, taking advantage of a looser budget target announced last month.

The decision reduced the official spending freeze from an original 45 billion reais to 32.1 billion reais and was in line with the outlook for fiscal loosening between 10 billion and 15 billion reais given by a government source on Thursday, Reuters reported.

President Michel Temer’s administration has struggled to meet its self-imposed budget targets through spending cuts and tax hikes as the economy slowly recovers from its worst recession on record. Last month, the government loosened the 2017 primary budget deficit goal to 159 billion reais from 139 billion reais previously.

Planning Minister Dyogo Oliveira told a news conference the government could free up more spending this year, depending on revenue estimates, adding that the current 2017 budget target is not at risk.

The government maintained its forecast for economic growth of 0.5% in 2017, taking a more cautious stance than the central bank, which upgraded its growth forecast to 0.75% on Thursday.

The unfrozen spending, announced at the bimonthly budget review, took into account an increase of 2.9 billion reais in revenue estimates from private concessions this year. It also took into account 8.8 billion reais in revenue from a tax renegotiation program known as Refis.

Meanwhile, Brazil’s central bank trimmed its inflation forecast on Thursday and said it expected economic growth to pick up into next year, painting a rosier picture for Latin America’s largest economy as interest rates approach record lows, mercopress reported.

In a quarterly inflation report, the central bank forecast economic growth of 0.75% in 2017, up from a previous estimate of 0.5%. For 2018, the bank forecast growth of 2.2%. Inflation is estimated at 3.2% in 2017 and 4.3% in 2018, down from 3.3% and 4.4% respectively that it expected previously.

The central bank, which has slashed interest rates from 14.25% to 8.25% over the past year to revive a recession-hit economy, maintained its forecast of gradually reducing the pace of interest rate cuts in coming months.

The bank extended its inflation scenario to include forecasts for 2019 and 2020, at 4.2% and 4.1% respectively. With inflation estimates hovering around the official target of 4% for 2020, policymakers said monetary policy can continue to stimulate economic growth.