Brazil's Budget Deficit Swells to Record as Economy Shrinks

  • Primary budget gap due to frustration in tax collection
  • February deficit was more than double what analysts forecast

Brazil recorded the largest-ever primary budget gap in 12 months through February as a two-year economic recession sapped tax collection while expenses grew further.

The deficit before interest payments, which includes results of states, municipalities and government-owned companies, reached 125.14 billion reais ($35 billion) in the 12-month period, or a record 2.11 percent of gross domestic product, the central bank said Wednesday.

The result shows a growing mismatch between government revenue and expense over the past year, said Tulio Maciel, head of the central bank’s economic research department. “While revenues are falling sharply due to the economic situation, at a rate of 12 to 13 percent (a year), expenses continue to grow,” he told reporters in Brasilia.

In February alone, the primary deficit reached 23 billion reais, more than double the median estimate of 11 billion reais from economists surveyed by Bloomberg. Investors and credit rating companies use the primary budget result to gauge Brazil’s fiscal health and its ability to service debt.

President Dilma Rousseff is facing an uphill battle against impeachment in Congress, which has hampered her ability to pass measures aimed at reducing expenditures in the long term. In the near future, the government is seeking to maintain spending to boost the economy, which could lead to a primary budget gap of nearly 97 billion reais this year.

The Brazilian economy is expected to shrink 3.6 percent this year after a 3.8 percent recession in 2015 -- the first time it contracts more than 3 percent for two consecutive years in more than a hundred years.

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