Brazil Cuts Primary Surplus and Budget for 2015

By Lise Alves, Senior Contributing Reporter

SÃO PAULO, BRAZIL – The decline in federal revenues due to the weakening Brazilian economy led the country’s economic team to announce the reduction of the primary surplus from 1.1 percent this year to 0.15 percent. The primary surplus target, which at the beginning of the year was set at R$66.3 billion (US$20.53 billion), has been lowered to R$8.747 billion (US$2.708 billion).

For Brazil’s Finance Minister Joaquim Levy the new measure will help reduce the risk of the country being downgraded by risk classification agencies.

“We are perfectly aware of the magnitude of the changes we are making,” said Levy during a press conference to announce the reduction. “We believe that this [low primary surplus] is a temporary phenomenon due to a series of factors which would have made the compliance to the target this year nonviable.”

On Wednesday, July 22nd, the government also announced additional cuts in spending this year, of R$8.6 billion (US$2.66 billion), increasing cuts to R$79.4 billion (US$24.58 billion). Levy admitted that the tough fiscal adjustments adopted by the government since the first semester of this year have not been very popular, but ‘necessary’ due to the great risks Brazil’s economy is facing.

“At first the actions of the government are not popular, but [eventually] everyone understands [they have to be taken], including Congress,” argued Levy.

Critics in Congress, however, state that the cuts announced since the beginning of the year will significantly affect the PAC (Growth Acceleration Program) further hindering the government’s credibility with investors. Market analysts point out that some of the criticism coming from the legislative body is due to the fact that some programs and bills introduced by Congressmen themselves will have budgets reduced or even scrapped altogether.

With rising inflation and unemployment and a reduction in federal revenues, Brazil’s economy is only expected to start to show improvements in 2016.