Brazil Government Said to Expect a Primary Deficit in 2016

Updated on

The Brazilian government will send to Congress Monday a budget proposal for 2016 that projects a primary deficit instead of the previously expected surplus, according to two government sources familiar with the matter.

President Dilma Rousseff had earlier abandoned the idea of reviving the so-called CPMF tax on financial transactions after a backlash from politicians and companies, said the sources, who asked not to be named because the negotiations aren’t public. The goal now is to send a budget proposal that is more aligned with the reality of a sharp economic slowdown, according to the sources.

Government officials writing the budget proposal will have to review their calculations because in order to reduce a deficit, further cuts in spending would also be needed, which some ministers oppose, the person said. For 2015, Brazil is targeting a primary surplus of 0.15 percent of gross domestic product.

Rousseff was alerted by Vice President Michel Temer in the past couple of days that the current political crisis would make it hard to convince the Congress to pass measures such as the CPMF tax. The government had planned to include the revenue collected from the tax in the budget proposal to be sent to lawmakers on Monday, one of the sources said. The president met with some ministers on Sunday to discuss the new budget proposal, according to the source.

The president and Finance Minister Joaquim Levy are struggling to put Brazil’s financial accounts back on track in order to avoid a credit rating downgrade as the economy heads toward its longest recession since the 1930s.

Brazil’s five-year credit-default swaps, contracts protecting holders of the nation’s debt against non-payment, rose 20 basis points to 351 basis points at 10:20 a.m. local time. That’s just below the level reached Aug. 24, which was the highest since 2009.

— With assistance by David Biller

(Updates with credit-default swaps in sixth paragraph.)
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