Brazil Strong Budget Result in January Is an Outlier

  • Brazil posts bigger-than-expected primary surplus in January
  • Nominal deficit expanded to a record 10.8 percent of GDP

Brazil’s primary budget surplus jumped in January to its strongest in two years due to a one-time surge in government revenue that is unlikely to be repeated any time soon, according to the central bank.

The surplus before interest payments, which includes results of states, municipalities and government-owned companies, reached 27.9 billion reais (7 billion) in January following the worst deficit on record in December, the central bank said Friday. Analysts surveyed by Bloomberg expected a surplus of 18.4 billion reais.

Investors and credit rating companies use the primary budget result to gauge Brazil’s fiscal health. The nominal deficit that includes interest payments expanded to a record 10.8 percent of gross domestic product in the 12 months through January.

Tax collection surged as it usually does in the first month of the year, giving the government some relief on the primary result as it struggles to shore up fiscal accounts. Also boosting the result was extraordinary revenue from a hydroelectric auction.

Yet dissent in Congress is complicating President Dilma Rousseff’s efforts to cut spending while the deepest recession in decades is sapping tax revenue. As the economy shows no sign of improving, policy makers say they may have to aim for a primary deficit for a third consecutive year, rather than a surplus as originally intended.

“The good result of January is unlikely to be repeated,” Tulio Maciel, head of the central bank’s economic department, told reporters in Brasilia. “The weak economy has been hurting the government and should continue to do so.”

Interest payments were the highest on record for the month of January, while losses with currency swaps, instruments used by the central bank to intervene in the foreign exchange market, amounted to 18.9 billion reais, Maciel said.

Difficulty in passing austerity measures and tax increases through Congress was among the reasons why Moody’s Investors Service stripped Brazil of its investment grade on Wednesday. The ratings firm cut the country’s sovereign rating by two steps to junk.

The real depreciated 0.9 percent to 3.9904 per dollar at 3:09 p.m. local time.

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