Brazil's Primary Government Surplus Narrows in November More Than Forecast

The Brazilian central government’s budget surplus before interest payments narrowed to a four-month low in November, signaling the government is likely to miss its fiscal target this year.

The so-called primary surplus of 1.1 billion reais ($650 million) last month was the smallest since July, and compares with a revised 7.8 billion reais surplus in October. The figure was below the median estimate of a 2 billion-reais surplus from eight economists surveyed by Bloomberg.

Finance Minister Guido Mantega said today that Brazil may miss its 2010 budget surplus target of 3.1 percent of gross domestic product because of a possible failure by state and local governments to deliver required savings. The central government now needs a surplus of 13 billion reais in December to hit its 2010 target, Treasury Secretary Arno Augustin said.

Brazil will post a “double digit” surplus in December on higher tax collection, Augustin said in Brasilia after the report was published.

In September, the government posted a record 26 billion reais surplus, after selling oil reserves for shares as part of Petroleo Brasileiro SA’s $70 billion stock sale. In November, Brazil cut its budget target by 0.2 percentage point, from 3.3 percent, after excluding state-controlled Centrais Eletricas Brasileiras SA from fiscal accounting.

‘Creative Accounting’

The government won’t be able to hit its target with the use of “creative accounting,” Jankiel Santos, chief economist at Espirito Santo Investment Bank, said in a telephone interview. The government’s failure to reach its targets puts additional pressure on the central bank, Santos added.

“Should they have any contribution from other sources, meaning the fiscal side, they would be able to hike interest rates in a milder way,” Santos said. “But that’s not the case.”

In its quarterly inflation report published last week, Brazil’s central bank signaled it may start increasing interest rates next month because of faster inflation. Santos expects policy makers to raise rates by 150 basis points, or 1.5 percentage points, over their next three meetings.

President-elect Dilma Rousseff will contain public spending after she takes office Jan. 1 to open space for the central bank to cut interest rates that are the highest in the Group of 20 nations, Mantega said Nov. 30.

Lower Target

Traders are wagering central bank President Alexandre Tombini will raise borrowing costs 50 basis points, or 0.5 percentage point, to 11.25 percent when he chairs his first monetary policy meeting Jan. 18-19, interest-rate futures contracts show. Tombini will take over from President Henrique Meirelles next week.

Yields on contracts maturing in January 2012 declined 0.01 percent, or one basis point, to 12.14 percent at 2 p.m. New York time. The real weakened 0.3 percent to 1.6904 per U.S. dollar.

Consumer price inflation in the 12 months through mid- December quickened to 5.79 percent, the fastest pace in 23 months.

To contact the reporters on this story: Matthew Bristow in Brasilia at; Arnaldo Galvao in Brasilia at

To contact the editor responsible for this story: Joshua Goodman at

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