Brazil’s Budget Deficit Comes in Below Forecast in June

Brazil posted a narrower-than-forecast budget deficit before interest payments in June as Finance Minister Henrique Meirelles seeks to control government spending and restore investor confidence in Latin America’s largest economy.

The central government recorded a so-called primary budget deficit -- excluding the performance of states, municipalities and state companies -- of 8.8 billion reais ($2.7 billion) in June, the national Treasury said Thursday. That compares with a median estimate for a 14.5 billion-real gap from 21 analysts surveyed by Bloomberg. Over the past 12-month period, the primary fiscal deficit reached 151.8 billion reais, compared with a target of a 170.5 billion-real gap for the full year of 2016.

While a Meirelles-sponsored bill to curb government spending sits in Congress, the economic team struggles to adjust the budget amid a steep drop in revenue. Tax collection in the first half of the year was the lowest since 2010, the Finance Ministry reported earlier Thursday. Putting the public debt back on a sustainable path is a crucial step to support an incipient recovery in investor confidence that is needed to pull the Brazilian economy out of its worst recession in decades. 

Uncertainty about the pace of implementation of the fiscal measures proposed by Meirelles is one of the reasons cited by the central bank to delay a much-anticipated monetary easing cycle, according to minutes of the bank’s latest interest-setting meeting released this week.

The government said last week that lower-than-forecast tax revenue and unforeseen expenses will force it to use 16.5 billion reais from a contingency reserve in order to meet this year’s fiscal deficit target without additional budget freezes.