BRAZIL POSTS SURPRISE BUDGET DEFICIT IN MARCH AS SPENDING RISES

(Bloomberg) -- Brazil posted a primary fiscal deficit of 1.5 billion reais ($293 million) in March, surprising analysts who forecast a surplus for the month and ramping up pressure on the government’s efforts to shore up public accounts.

The result represented a decline from the deficit of 7 billion reais the government reported the same month a year ago, according to data released Monday. But it fell far short of the median forecast of a surplus of 1.6 billion reais, as spending increased beyond expectations.

The outcome will further increase scrutiny of Finance Minister Fernando Haddad’s push to close Brazil’s budget gap. Haddad has pledged to eliminate the country’s primary fiscal deficit, which excludes interest payments, this year. Earlier this month, he softened the government’s budget target for 2025.

The shortfall was due in part to increased social security expenditures that will require further monitoring, Treasury Secretary Rogerio Ceron said at a press conference following the release. 

Haddad has sought to reach his goals primarily through increased tax revenues, and record collections over the opening months of the year allowed him to defy some of the market’s skepticism of those attempts. 

Read More: Brazil’s Fiscal Woes Ramp Up Pressure on Lula’s Finance Chief

President Luiz Inacio Lula da Silva’s economic team is currently projecting a 2024 deficit of 0.1% of GDP, within the tolerance range of spending rules established last year. But tax income now appears to be waning, and analysts widely expect that the government will have to change the fiscal target later this year: Markets are projecting primary gaps of 0.7% of GDP in 2024 and 0.6% in 2025, according to the central bank’s latest weekly survey of economists.

“Looking ahead, we point out that uncertainty regarding the revenue-raising measures remains very high, and information on the last official reports did not support any improvement on this matter,” analysts from XP Investimentos wrote in a note, adding that the increase in pension spending was “much higher than anticipated in the budget.”

Ceron, however, said the 2024 zero-deficit target remains feasible. He added that Haddad’s efforts to bolster revenues are showing results and that the government can take additional steps to increase collections if necessary. 

“We are happy with the fiscal results, but challenges remain,” Ceron said.

--With assistance from Bruna Lessa.

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