Brazil missed its fiscal target in 2013 as government spending outpaced revenue by the widest year-end amount on record.
Brazil’s budget gap in 2013 reached 157.6 billion reais ($64.9 billion) after widening in December to 13.6 billion reais from 0.2 billion reais a month earlier. That’s the biggest year-end deficit since the series started in 2002. The median forecast from six analysts surveyed by Bloomberg was for a monthly shortfall of 14 billion reais. The primary surplus in December was 10.4 billion reais, below the median forecast of 11.7 billion reais from 16 economists.
Brazil’s primary surplus before interest payments was 1.9 percent of gross domestic product last year, according to central bank data released in Brasilia today. That failed to reach the government’s 2.3 percent target, which had been reduced from about 3.1 percent at the start of last year.
President Dilma Rousseff’s government has come under scrutiny for its fiscal management, as public spending has widened the deficit without sustaining economic growth. Pacific Investment Management Co. on Jan. 23 said the country needs a credible primary surplus goal, after Moody’s and Standard and Poor’s last year cut their Brazil credit rating outlook on growing debt. Policy makers have countered by saying that maintaining a sound fiscal policy will continue to be government priority.
“Brazil’s fiscal position deteriorated substantially in 2013,” Michael Shaoul, chairman and chief executive officer of Marketfield Asset Management LLC, which oversees $21 billion, said in comments by e-mail. “It is moving in the wrong direction at a time of great international scrutiny which does raise the stakes as far as the reaction of capital markets is concerned.”
Swap rates on the contract maturing in January 2015, the most traded in Sao Paulo today, rose 11 basis points, or 0.11 percentage point, to 11.74 percent at 12:50 p.m. local time. The real weakened 0.5 percent to 2.4209 against the U.S. dollar.
The budget deficit widened to a record even as revenue was boosted by extraordinary receipts including payments of corporate back taxes on earnings abroad and 15 billion reais from the winners of the concession for the Libra offshore oil field.
Brazil’s public spending is under control and the government will release its 2014 primary surplus target in February, President Rousseff told investors and journalists in Davos on Jan. 24. Implementing a sound fiscal policy is pivotal for the country, central bank President Alexandre Tombini said in London three days later.
Investors are not as positive. Pimco wrote in an e-mailed report on Jan. 23 that Brazil’s government is “doubling down” on a failing policy of fiscal spending and subsidized lending from state banks to boost growth.
Standard & Poor’s in June placed Brazil’s rating on negative outlook, and Moody’s Investors Service in October lowered its outlook to stable from positive, citing deteriorating debt and investment ratios and evidence of slow growth.
Brazil’s central bank on Jan. 15 increased borrowing costs by 50 basis points for the sixth straight meeting, boosting the key rate to 10.5 percent. In the minutes to their Jan. 14-15 monetary policy meeting, central bankers said they see conditions for a neutral fiscal policy.
Inflation will accelerate to 6.02 percent this year, according to a central bank survey of about 100 analysts published on Jan. 27. Consumer prices in the year through mid-January rose 5.63 percent, compared to the 4.5 percent mid-point of the central bank’s inflation target.
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