Brazil Posts First Primary Deficit in Nearly Three Years

Brazil in November posted its first budget deficit before interest payments in nearly three years, as government spending continues to outpace tax collection in the world’s second-biggest emerging market.

Federal and local governments, including state companies, had a primary deficit in November of 5.5 billion reais ($2.7 billion), compared with a surplus of 12.4 billion reais a month earlier, the central bank said in a report today in Brasilia. The lowest estimate from 13 analysts surveyed by Bloomberg was for a 2.2 billion reais surplus, and the median estimate was for a 5.5 billion reais surplus. The primary deficit was the first since March, 2010.

After interest payments, the budget had a deficit of 21.8 billion reais.

Brazilian authorities have expanded tax breaks for companies and consumers while boosting government spending, as Brazil posts the slowest two-year growth in more than a decade. Government officials will further reduce taxes to strengthen the economy next year, President Dilma Rousseff said on Dec. 19. Still, higher spending may fuel inflation, which accelerated to 5.78 percent through mid-December and is forecast by economists to remain above the central bank’s 4.5 percent target for the third straight year.

Surplus Target

The primary surplus in the first 11 months of the year reached 82.7 billion reais, the central bank said. The government targets a surplus of 139.8 billion reais for 2012, about 3.1 percent of gross domestic product. Finance Minister Guido Mantega said last month that the government will include 25.6 billion reais in infrastructure spending to meet its 2012 primary surplus target after tax income dropped.

Stronger growth will allow Brazil to meet its primary surplus goals without adjustments in both 2013 and 2014, the central bank’s director for economic policy, Carlos Hamilton told reporters on Dec. 20. The central bank forecasts growth this year of 1 percent. The economy will expand 3 percent to 4 percent in 2013, Mantega said today in an interview broadcast on Globo News TV.

Net debt fell to 35 percent of gross domestic product from 35.2 percent in October, the central bank said.

Swap rates on the contract maturing in January 2014, the most traded in Sao Paulo today, fell one basis point, or 0.01 percentage point, to 7.12 percent at 11:13 a.m. local time. The real weakened 0.1 percent to 2.0454 per U.S. dollar.

Brazil’s central government posted a primary deficit, excluding interest payments, of 4.3 billion reais in November, the treasury said earlier today. The central government’s deficit comes after a 9.9 billion reais surplus in October and compares with a median forecast of a 2.1 billion reais surplus from 13 economists surveyed by Bloomberg.

To contact the reporter on this story: Matthew Malinowski in Brasilia at mmalinowski@bloomberg.net

To contact the editor responsible for this story: Philip Sanders at psanders@bloomberg.net

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