Brazil Posts Wider Than Forecast Nominal Budget Gap in March

Brazil’s budget deficit in March was wider than economists forecast, as the government works to solidify fiscal accounts in the wake of a debt downgrade last month.

The budget gap in March widened to 13 billion reais ($5.8 billion) from 9.5 billion reais a month earlier. The median forecast from four analysts surveyed by Bloomberg was for a shortfall of 11.8 billion reais. The primary surplus, excluding interest payments, in the same month was 3.6 billion reais, above the median forecast of a 3.1 billion reais surplus from 18 economists.

President Dilma Rousseff’s government has pledged fiscal restraint to boost investor confidence and help tame prices after posting the biggest deficit on record last year. S&P in March lowered its Brazil credit rating to the lowest investment-grade, flagging economic expansion and expansionary fiscal policies. Finance Minister Guido Mantega has said Brazil will reign in tax breaks and insisted this week that S&P’s decision was a mistake.

Swap rates on the contract due in January 2015 were unchanged at 11.01 percent at 10:45 local time. The real strengthened 0.1 percent to 2.2357 per U.S. dollar.

Debt Downgrade

Brazil will aim for a primary surplus target this year of 1.9 percent of gross domestic product, the Finance Ministry said in a Feb. 20 statement. The figure in the year through March was 1.75 percent, the central bank report said today.

The central government in March posted a 3.2 billion reais primary surplus, compared with a 3.1 billion deficit a month earlier, the Treasury said in a report distributed in Brasilia today. The surplus was wider than the forecast of 13 economists surveyed by Bloomberg, whose median estimate was for a surplus of 1.1 billion reais.

S&P in March downgraded Brazil one step to BBB-, one step above junk, with a stable outlook. The move ended a decade-long stretch of upgrades for the world’s second-largest emerging market.

Brazil’s budget gap in 2013 reached 157.6 billion reais after widening in December to 13.6 billion reais from 0.2 billion reais a month earlier, the central bank said on Jan. 31. That’s the biggest year-end deficit since the series started in 2002.

Mantega this month reiterated that Brazil will meet its 2014 fiscal targets. Policy makers should gradually seek higher primary surplus targets, Mantega said on April 29.

Beverage Tax

Brazil’s government will increases taxes on cold beverages such as beer and soda beginning June 1 as part of efforts to increase revenue, Carlos Alberto Barreto, the head of the federal tax agency, told reporters yesterday. The measures are expected to raise 1.5 billion reais by year-end, Barreto said.

The central bank on April 2 raised the Selic by 25 basis points to 11 percent, and has lifted the key rate by 375 basis points in the past year to combat price increases. Annual inflation in mid-April jumped to 6.19 percent and has remained above the 4.5 percent midpoint of the central bank’s target range for over three years.

Brazil’s economy will expand 2 percent this year, according to the central bank. That compares with 2.3 percent growth in 2013 and a 0.9 percent increase in 2012.

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