Brazil Posts Widest Federal Primary Budget Gap in Almost 5 Years

Brazil’s federal government posted the widest primary budget deficit in almost five years, a performance that Banco J. Safra says increases the probability the nations credit rating will be downgraded.

The budget balance, excluding interest payments, swung into a 10.5 billion reais deficit from a surplus of 87 million reais a month earlier, the National Treasury said in a report distributed in Brasilia today. The deficit, which excludes states, municipalities and state companies, exceeded estimates of all 17 analysts surveyed by Bloomberg, whose median forecast was for a gap of 500 million reais.

The government has cut taxes and increased spending to revive economic growth that continues to falter amid above-target inflation. Standard & Poor’s and Moody’s lowered this year the outlook on Brazil’s credit rating.

“While this number alone may not trigger an action, the recent trajectory has worsened and increased the possibility of a downgrade.” said Carlos Kawall, chief economist at Banco J. Safra.

The worsening fiscal performance undermines central bank efforts to rein in inflation, he said.

Swap rates on the contract maturing in January 2017, the most traded in Sao Paulo today, rose eight basis points, or 0.13 percentage point, to 11.43 percent at 10:51 a.m. local time. The real weakened 0.32 percent to 2.1976 against the U.S. dollar.


Standard & Poor’s in June placed Brazil’s rating on negative outlook, and Moody’s this month lowered its outlook to stable from positive. Moody’s cited Brazil’s 59 percent government debt-to-GDP ratio versus a 45 percent median for other sovereigns with the same rating, and both agencies highlighted the increase in public lending.

To contact the reporters on this story: Arnaldo Galvao in Brasilia Newsroom at; Raymond Colitt in Brasilia Newsroom at

To contact the editor responsible for this story: Andre Soliani at

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