Levy’s Federal Primary Budget Disappoints Brazil Analysts Again

Brazil’s central government primary surplus expanded less than forecast as Finance Minister Joaquim Levy struggles to shore up public accounts.

The budget, which excludes interest payments as well as municipalities and government-run companies, widened to 10.1 billion reais ($3.2 billion) in April, compared with a median estimate of 11.3 billion reais in a Bloomberg survey of 18 analysts. The budget results have been below analysts expectations since Levy took office in January.

After freezing part of this year’s spending budget and winning victories in Congress on austerity measures, Levy still faces diminished revenues and forecasts of the worst recession in 25 years. Confidence remains at record lows, and the central bank is raising rates to slow above-target inflation.

Swap rates on the contract due in January 2017, the most traded in Sao Paulo, fell 4 basis points, or 0.04 percentage point, to 13.29 percent at 3:43 p.m. local time. The real weakened 0.7 percent to 3.1605 per U.S. dollar after the Federal Reserve signaled it will raise borrowing costs.

With the slowing economy hitting government revenue, Levy has increased taxes on banks, fuel and imports to deliver a primary surplus, including states and municipalities, of 1.1 percent of gross domestic product one year after the worst primary deficit on record.

While Standard & Poor’s has given a vote of confidence to the government by affirming the country’s investment-grade status, the company said that the first months of the year show how difficult it will be to achieve the budget target.

The risk of a downgrade hasn’t been averted, and the approval of austerity measures are needed to avoid it, Levy told lawmakers on April 29.

Analysts surveyed by the central bank forecast the economy will shrink 1.24 percent this year, which would be the worst result since 1990.