Brazilian President Dilma Rousseff’s government pledged on Friday to keep spending under control this year despite a general election and sought to calm market jitters over a possible credit downgrade with healthy fiscal results for last year.
Brazilian Finance Minister Guido Mantega said the central government exceeded its primary fiscal surplus target for last year of 73 billion reais (US$30.47 billion) thanks to higher tax collection and stronger economic growth. The primary surplus is the excess of revenue over expenditure before debt payments.
Preliminary data shows that the government’s primary surplus totaled about 75 billion reais for the year, a little more than 1.5 percent of GDP, Mantega said.
The government brought forward the announcement of last year’s fiscal results to soothe markets’ anxiety over the financial soundness of the world’s seventh-largest economy.
“It would not be good to keep analyst expectations hanging until the end of January. This will calm nerves,” Mantega said in a news conference, adding that the economy is on the upswing with investment and consumption on the rise.
However, the South American nation is not expected to meet its consolidated primary fiscal target, which includes state and city governments, which was set at 111 billion reais for last year.
The primary surplus helps show how much money the government can set aside to pay maturing debt without borrowing more. It is watched closely by investors as a gauge of fiscal health.
Brazil’s public finances have been deteriorating since its once-booming economy slowed to a crawl two years ago. Economists do not expect the Rousseff administration to rein in spending as October’s presidential election approaches. She is widely expected to seek a second term.
Rousseff last year relied heavily on billions of dollars in extraordinary revenue from corporate back-tax settlements and bonuses from oil-rights auctions to make up for weak fiscal results, a situation that has worried investors and raised the specter of a credit downgrade.
Mantega said Rousseff’s government is committed to keeping spending under control this year and will announce annual budget-freeze details next month. Brazil will pursue a primary budget surplus target for this year that will keep its debt/GDP ratio on a downward path, he said.
“Tax collection is growing in the last few months, despite the tax cuts we made, reflecting the increase in economic activity,” Mantega said.
He said tax revenue last month was a record.
Investments in the Brazilian economy grew about 6.5 percent last year and investment as a percentage of GDP ended the year above 19 percent, Mantega said. He said infrastructure concessions will drive up investment this year.
Rousseff’s government lowered its consolidated primary surplus target for last year as it granted tax breaks to boost growth. It also increased public spending savings and put pressure on the central bank to raise interest rates to contain inflation, a move that caused debt costs to rise.
It started with a goal of 3.1 percent of GDP and cut that to 2.3 percent, but will likely come in at around 2 percent.