Brazil’s Finance Minister Joaquim Levy said Congress needs to approve social welfare cuts and a tax increase presented by the government to ensure this year’s fiscal target is met.
“We do believe we can” meet the primary fiscal surplus target of 1.2 percent of gross domestic product, Levy said during an interview at the Bloomberg Americas Monetary Summit in New York. “It will require that the measures that we have sent to Congress be passed, and it will require a lot of attention.”
Levy is leading government efforts to avert a sovereign-credit downgrade by raising prices of regulated items such as electricity, implementing tax increases and reducing spending. The fiscal readjustment comes as Latin America’s largest economy stands on the verge of its deepest recession in a quarter century and above-target inflation eats away at purchasing power.
The government’s target for the primary fiscal surplus, which excludes interest payments, would be up from a 0.6 percent deficit in 2014. Levy sent two proposals to Congress that are worth about 23 billion reais ($7.6 billion) in spendings cuts and revenue increases. That’s equivalent to about 35 percent of this year’s fiscal target.
“Things have been going well in Congress,” Levy said. “People do understand that this is essential to get Brazil on a new path of growth.”
Standard & Poor’s last year cut Brazil’s sovereign credit rating to BBB-, one level above junk, citing the fiscal deterioration. Government pledges to reduce its debt didn’t prevent Fitch Ratings from lowering its outlook on Brazil to negative this month.
President Dilma Rousseff enlisted Vice President Michel Temer as her key negotiator with lawmakers to rebuild a fractured coalition that threatens to derail her economic plan.
Temer, a former head of the lower house, on April 8 signed a pact with coalition leaders to support proposals that narrow the budget deficit.
Brazil’s economy expanded 0.1 percent last year, and economists surveyed by the central bank forecast a 1.03 percent contraction in 2015. That would be the worst performance in 25 years, according to figures from the central bank.
“We are moving from a demand-pushing policy to something that is much more supply-side,” Levy said, referring to government plans to increase investments in infrastructure and create a more business-friendly environment.
He said business leaders understand the changes that are being made in Brazil, highlighting signs that confidence has stopped falling.
The key for Brazil’s recovery is “to be steady” in implementing policies that are being backed by Rousseff, Levy said. He said that the central bank needs to remain “vigilant” to ensure the inflation outlook improves and becomes anchored to the 4.5 percent target.
Speaking later on Monday to reporters, the minister said Brazil can beat 2016 inflation estimates made by analysts in the central bank survey. The economists forecast a consumer price increase of 5.6 percent next year.
“We can do better than that,” Levy said. “We have to keep persevering. We have to complete the fiscal adjustment -- have everything voted in Congress -- to complete all the stages so Brazil can return to growth.”