Brazil fell far short of its consolidated primary surplus goal for 2013, posting its weakest result in more than a decade as the rapid corrosion of the country's finances adds to fears of a credit downgrade.
The country posted a primary budget surplus of 10.407 billion reais ($4.30 billion) in December, central bank data showed on Friday, below the median forecast for a surplus of 11.9 billion reais.
In all of 2013, the primary budget surplus, which represents the public sector's excess revenue over expenditures before debt payments, was 91.3 billion reais, short of the 111 billion reais goal set for the year. The result is equivalent to 1.9 percent of the country's gross domestic product.
The primary budget balance is closely watched by creditors, since it measures a country's capacity to service its debts.
Efforts to restrain spending are especially relevant now as many investors are exiting emerging markets on fears that the once-booming economies are on the verge of a sharp slowdown.
Overall, the consolidated budget deficit of Brazil, which includes interest payments, swelled in 2013 to 157.55 billion reais, equal to 3.28 percent of GDP - the highest since 2010. In 2012, the deficit equaled 2.48 percent of GDP in 2012.
Under Brazilian accounting, the consolidated public sector budget encompasses governments at the federal, state and local level, as well as a range of state-owned companies.
Initially, Brazil's primary surplus goal was 156 billion reais, equal to about 3.1 percent of GDP. But that was reduced in mid-2013 after the government lost billions of reais in tax breaks and increased public spending in a bid to jump-start the economy.
If it wasn't for a surge in extraordinary revenues coming from corporate tax settlements and an oil field auction bonus late last year the country's primary surplus would have been much lower.
"The risk of a (credit) downgrade remains high," said Flavio Serrano, senior economist with Espirito Santo Investment Bank in Sao Paulo. "The extraordinary revenues accounted for about half of the central government's (primary) surplus."
A credit downgrade could raise borrowing costs for Brazil, particularly at a time of exodus from emerging markets. markets. [ID:nL5N0L44C7].
Brazil's credit rating is currently two notches above junk status by the three leading Wall Street credit ratings agencies.
lthough Brazil is in better fiscal shape than many developed nations, the rapid deterioration of its accounts under President Dilma Rousseff has worried investors and prompted Standard & Poor's to threaten a credit rating downgrade as soon as this year.
In 2011, the first year of her presidency, Rousseff was able to exceed the fiscal target despite a slowdown of the economy. Since then, fiscal accounts have fallen sharply as she has made repeated attempts to fire up an economy that has been stuck in a rut for the last three years. The Brazilian economy likely grew just above 2 percent in 2013.
An increase in the transfer of government capital to state-run development bank BNDES, which is not included in the budget, has increased the country's gross debt over the last few years and worried rating agencies.
Rousseff has promised to reduce transfers and rein in spending this year to regain fiscal credibility, which many economists believe is key to ease high inflation expectations and reignite economic growth in coming years.
The government plans to announced a consolidated primary surplus goal of about 2 percent of GDP for 2014 in February, government officials have told Reuters.
Although that figure will likely keep the country's debt burden on a downward path, many private economists doubt the administration can reach that goal without cutting public investment or resorting to accounting tricks.
"They will have to reduce investments. There is no other way," said Cristiano Souza, economist with Santander, who expects the government to announce a goal of 2 percent of GDP.
"It will be a hard year, but it needs to be done. You need to announce a big number and you need to deliver that number because you need to gradually regain (the market's) confidence."
Rousseff faces growing spending pressures in an election year in which she is widely expected to run for a second term. A likely increase in electricity subsidies this year as reservoir levels remain low will also keep pressure on the government's finances. In late 2012, the government took money from a sovereign fund to bolster its fiscal results.
It is the second year in a row that the government fell short of its annual primary goal.
A slowdown in public spending would also prevent the central bank from hiking rates much more and damaging a feeble economic recovery. The central bank has raised its benchmark Selic rate by 325 basis points since April to tame inflation.
Source: Reuters
The country posted a primary budget surplus of 10.407 billion reais ($4.30 billion) in December
In all of 2013, the primary budget surplus, which represents the public sector's excess revenue over expenditures before debt payments, was 91.3 billion reais, short of the 111 billion reais goal set for the year. The result is equivalent to 1.9 percent of the country's gross domestic product.
The primary budget balance is closely watched by creditors, since it measures a country's capacity to service its debts.
Efforts to restrain spending are especially relevant now as many investors are exiting emerging markets on fears that the once-booming economies are on the verge of a sharp slowdown.
Overall, the consolidated budget deficit of Brazil, which includes interest payments, swelled in 2013 to 157.55 billion reais, equal to 3.28 percent of GDP - the highest since 2010. In 2012, the deficit equaled 2.48 percent of GDP in 2012.
Under Brazilian accounting, the consolidated public sector budget encompasses governments at the federal, state and local level, as well as a range of state-owned companies.
Initially, Brazil's primary surplus goal was 156 billion reais, equal to about 3.1 percent of GDP. But that was reduced in mid-2013 after the government lost billions of reais in tax breaks and increased public spending in a bid to jump-start the economy.
If it wasn't for a surge in extraordinary revenues coming from corporate tax settlements and an oil field auction bonus late last year the country's primary surplus would have been much lower.
"The risk of a (credit) downgrade remains high," said Flavio Serrano, senior economist with Espirito Santo Investment Bank in Sao Paulo. "The extraordinary revenues accounted for about half of the central government's (primary) surplus."
A credit downgrade could raise borrowing costs for Brazil, particularly at a time of exodus from emerging markets. markets. [ID:nL5N0L44C7].
Brazil's credit rating is currently two notches above junk status by the three leading Wall Street credit ratings agencies.
In 2011, the first year of her presidency, Rousseff was able to exceed the fiscal target despite a slowdown of the economy. Since then, fiscal accounts have fallen sharply as she has made repeated attempts to fire up an economy that has been stuck in a rut for the last three years. The Brazilian economy likely grew just above 2 percent in 2013.
An increase in the transfer of government capital to state-run development bank BNDES, which is not included in the budget, has increased the country's gross debt over the last few years and worried rating agencies.
Rousseff has promised to reduce transfers and rein in spending this year to regain fiscal credibility, which many economists believe is key to ease high inflation expectations and reignite economic growth in coming years.
The government plans to announced a consolidated primary surplus goal of about 2 percent of GDP for 2014 in February, government officials have told Reuters.
Although that figure will likely keep the country's debt burden on a downward path, many private economists doubt the administration can reach that goal without cutting public investment or resorting to accounting tricks.
"They will have to reduce investments. There is no other way," said Cristiano Souza, economist with Santander, who expects the government to announce a goal of 2 percent of GDP.
"It will be a hard year, but it needs to be done. You need to announce a big number and you need to deliver that number because you need to gradually regain (the market's) confidence."
Rousseff faces growing spending pressures in an election year in which she is widely expected to run for a second term. A likely increase in electricity subsidies this year as reservoir levels remain low will also keep pressure on the government's finances. In late 2012, the government took money from a sovereign fund to bolster its fiscal results.
It is the second year in a row that the government fell short of its annual primary goal.
A slowdown in public spending would also prevent the central bank from hiking rates much more and damaging a feeble economic recovery. The central bank has raised its benchmark Selic rate by 325 basis points since April to tame inflation.
