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Brazil freezes spending at $3.33 billion to comply with fiscal rules

By Reuters   |   Nov 23, 2024 at 05:18 AM EST
Brazil freezes spending at $3.33 billion to comply with fiscal rules

BRASILIA (Reuters) - Brazil's government tightened spending controls late on Friday, freezing expenditure at 19.3 billion reais ($3.33 billion) to comply with this year's fiscal rules.

The figure exceeds the 13.3 billion reais of spending announced in a previous report in September, according to a bi-monthly revenue and expenditure report from the Planning and Finance Ministries.

The government also revised its 2024 primary deficit forecast to 28.7 billion reais, slightly up from the previously projected 28.3 billion reais.

The new forecast remains within the fiscal target of a zero deficit for the year, which allows for a tolerance margin of 0.25 percentage points of GDP in either direction, permitting a shortfall of up to 28.8 billion reais.

The 6 billion reais increase in the spending freeze came as the government projected higher mandatory expenditure for this year, which would have breached a legally established spending cap.

The new fiscal framework approved last year by President Luiz Inacio Lula da Silva combines a primary budget result target with an overall spending cap, limiting expenditure growth to 2.5% above inflation this year.

In practice, this means that when projections for mandatory spending increase, the government must freeze other expenses to remain within the cap.

The rise in expenditure projections was primarily driven by higher social security benefits, the latest report said.

The rapid growth of mandatory spending has fueled market concerns about the sustainability of Brazil's fiscal framework, affecting long-term interest rates and the Brazilian real, which has weakened more than 16% against the dollar year-to-date.

Finance Minister Fernando Haddad said a long-awaited package to curb mandatory spending is expected to be announced next week. The government had indicated that the measures would be unveiled after municipal elections held at the end of October, but a delay to present the package has dampened market sentiment.

($1 = 5.8010 reais)

(Reporting by Marcela Ayres; Editing by Bernadette Baum)

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