According to Haddad, out of the total 15 billion announced on Thursday, 11.2 billion reais in expenditures will be blocked to comply with a fiscal framework rule that imposes a cap on annual spending growth.
Additionally, another 3.8 billion reais will need to be frozen due to the lack of agreement with the Senate on alternatives to payroll tax benefits approved by lawmakers, he said. Haddad said those funds could be unfrozen if a deal to offset revenue losses from the tax exemptions is reached.
The decision to hold back on spending comes amid market worries about the government’s ability to meet its goal of eliminating the primary deficit. Since the beginning of the year, the real has fallen more than 13% against the U.S. dollar, while interest rate futures have soared amid higher risk premia.
Haddad’s announcement to the press followed a meeting with President Luiz Inacio Lula da Silva and preempted data that was set to be revealed on Monday, when the government will release its bimonthly revenue and expenditures report. Haddad said this was done to prevent leaks.
The government’s goal this year is to eliminate the primary deficit, which excludes interest payments, with a tolerance band of 0.25% of GDP, either up or down. This means the primary deficit could be close to 29 billion reais.
According to Haddad, the revenue and expenditure report will show a primary deficit near the upper limit of the tolerance band but still within the fiscal target.
($1 = 5.5647 reais)
Source: Economy - investing.com
