By Jamie McGeever and Marcela Ayres
BRASILIA (Reuters) – The Brazilian government on Monday announced an additional 1.443 billion reais ($386 million) freeze on spending, as weak economic growth squeezes revenue and threatens government fiscal rules and budget forecasts.
The freeze announced in the Economy Ministry’s latest bimonthly public spending and revenue review was slightly below the 2.5 billion reais estimate from President Jair Bolsonaro over the weekend, as the government will cover part of the shortfall with 809 million reais from a reserve fund.
The latest freeze brings the total so far this year to 34 billion reais, of which 3 billion will be covered from cash reserves. The government slashed its 2019 economic growth projection to 0.8% from 1.6% earlier this month, and officials on Monday said weak revenues forced its hand.
“The most important explanation is the fall in GDP growth forecasts and lower GDP. This was behind the fall in tax revenues,” Waldery Rodrigues, special secretary to the Economy Ministry, told reporters in Brasilia.
Rodrigues noted that revenues are expected to be 6 billion reais lower than predicted in May. He declined to say which ministries’ budgets will be affected by the latest freeze.
Government officials had said last week they hoped to avoid a fresh round of budget freezes, but President Bolsonaro said on Saturday that the federal budget was “completely compromised” and that spending would have to be cut by 2.5 billion reais.
The government is hoping its proposals to overhaul the country’s expensive social security system will put Brazil on a more stable financial footing. Its pension reform bill received an overwhelming initial vote of confidence from lawmakers earlier this month.
The government is aiming to post a primary budget deficit of 139 billion reais this year, before interest payments are taken into account. It has also committed to cap public spending growth at the rate of inflation, and not to issue debt to pay for current expenditure.
Rodrigues said the government plans to issue a decree this week with rules to allow workers to withdraw from their federally-run workers severance funds.
The measures are of “extremely high importance” both for the short term impact and the longer term structural benefit of the economy, Rodrigues said.
Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.