Brazil’s government is cutting spending for the second time in two months to help meet its fiscal target as it forecasts slower growth this year in Latin America’s biggest economy.
The government is reducing expenditures by 10 billion reais ($4.5 billion) and lowering this year’s economic growth forecast to 3 percent from 3.5 percent, Finance Minister Guido Mantega said today. The government will meet its primary budget surplus target, which excludes interest payments, of 2.3 percent of GDP this year without reducing investments, he said.
President Dilma Rousseff has pledged to keep a lid on expenditures to help control inflation that has exceeded the upper limit of the central bank’s target range twice this year. The government will cut travel, information technology, rental and outsourcing expenses, Planning Minister Miriam Belchior told reporters alongside Mantega in Brasilia.
“It’s a step in the right direction but it won’t be sufficient to meet the budget target,” Luciano Rostagno, chief strategist at Banco WestLB do Brasil, said by telephone from Sao Paulo. “Tax income is likely to fall short of what they are expecting because the GDP growth forecast is still optimistic.”
Economists cut their 2013 economic growth forecast for the 10th consecutive week to 2.28 percent in a central bank survey published today. While the government is open to further revisions of its GDP outlook, Mantega cautioned about changing forecasts too frequently.
“We also can’t change the GDP like you change clothes,” he said.
Rousseff is balancing efforts to slow consumer price increases while meeting public demands for improved health care, education and public transportation. More than 1 million Brazilians in June demonstrated throughout the country for lower bus fares, less government corruption and better public services, among other issues.
On May 22, Mantega said the government was cutting 28 billion reais in spending.
Standard & Poor’s in June lowered its outlook for Brazil’s BBB credit rating, citing a loss of credibility in the government’s fiscal accounts. Last week Fitch Ratings affirmed its BBB rating and said policy adjustments may improve confidence in Brazil’s economy.
First-quarter economic growth unexpectedly slowed to 0.55 percent from the previous three-month period, falling short of analysts’ forecasts for the fifth straight quarter. GDP climbed 0.9 percent last year, the worst performance since the 2009 recession.
Consumer prices rose 6.4 percent in the year through mid-July after breaching the upper limit of the central bank’s 2.5 percent to 6.5 percent target range the previous month. Annual inflation will end the year at 5.75 percent, according to the median estimate of analysts polled July 19 by the central bank.