Levy Says Brazilian Growth Can’t Happen Before Fiscal Adjustment

Brazil needs to finish its fiscal adjustment before seeking growth, and must reflect on economic risks generated by public spending, Finance Minister Joaquim Levy said as Congress reconvenes following a recess.

The country needs fast reforms, and President Dilma Rousseff has assumed the popularity cost of doing what’s necessary to restart growth, Levy said at an event in Brasilia. Brazil’s fiscal adjustment is a result of the country’s economic weakness and didn’t provoke a slowdown, he said.

Brazil’s Congress resumed work this week with several measures aimed at bolstering public accounts still pending votes. Dwindling tax income forced Levy last month to slash Brazil’s primary surplus target for this year and next. A few days later, Standard & Poor’s lowered the outlook on Brazil’s sovereign credit rating to negative, and warned that backtracking on fiscal commitments would prompt a cut to junk.

“Public spending, notably of an obligatory nature, grew persistently and returned to being a risk for economic stability,” Levy said. “It’s important that everyone reflect on this fact.”

S&P on July 28 revised the outlook on Brazil’s BBB- rating to negative from stable. There’s a one-in-three chance that the government will slip in efforts to improve the economy, and that restoring growth will take longer than expected, S&P said.

Brazil’s economy will contract 1.8 percent this year, as annual inflation in December reaches 9.25 percent, according to a central bank survey of economists published on Aug. 3. That would be the worst recession in a quarter-century.

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