Brazil – A bumpy road for fiscal adjustment, but in the right direction
Despite political noise, Brazil's fiscal accounts are set to improve. The political debate surrounding measures to cut spending has intensified. Last week the lower house passed a watered-down version of a proposal to re…
Despite political noise, Brazil's fiscal accounts are set to improve. The political debate surrounding measures to cut spending has intensified. Last week the lower house passed a watered-down version of a proposal to reduce public spending by cutting survivor pension benefits.
Later this week the government will announce 'contingenciamento', which is how much less spending in 2015 is being cut than was budgeted. The market expects BRL 70bn of cuts.
Finance Minister Ley wants BRL 80bn and the opposition proposes BRL 60bn. Meeting the BRL 66.3bn fiscal target in 2015 (1% of GDP) would mean an improvement of almost BRL 100bn from last year's primary deficit of BRL 32.5bn.
The government would likely need to hike taxes or sell equity from state-owned firms to raise revenues.
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