Brazil posts third largest deficit ever in December, highlights fiscal challenges

By Jamie McGeever and Marcela Ayres

BRASILIA (Reuters) – The Brazilian government posted a fiscal deficit of 41.13 billion reais ($11.27 billion) in December, the third widest monthly deficit on record, the central bank said on Thursday.

While it was in line with forecasts and amplified by seasonal factors, the shortfall highlights the challenge of exerting tighter control over the country’s finances which new President Jair Bolsonaro has said is one of his top priorities.

Brazil has only posted a bigger monthly primary deficit twice before, in December 2015 and 2016.

Last month’s figure, comprising the central government, regional governments and state-owned enterprises before interest payments are factored in, brought the total shortfall for 2018 to 108.26 billion reais.

That was the fifth straight year of deficit. But it was well below the government’s target of 161.3 billion reais and marked a slender improvement on the previous year. In nominal terms it was the narrowest gap since 2014, equal to 1.57 percent of gross domestic product.

There was little reaction in Brazilian financial markets, where the real was already trading at a three-month high around 3.65 per dollar, interest rate futures contracts at their lowest this year and stocks hitting a fresh record high.

“People are focused on the upcoming pension reform, not December’s fiscal figures,” one fund manager in Sao Paulo said.

Official figures earlier this week showed that the biggest drag by far on the central government’s accounts was social security spending, which grew 7 percent last year to 195.2 billion reais.

The lion’s share of December’s primary deficit was the central government’s shortfall of 32.8 billion reais. In 2018, the government’s deficit totaled 116.2 billion reais, and narrow surpluses registered by regional government and state-owned companies helped limit the overall deficit.

Thursday’s figures showed that government interest payments fell to 379.2 billion reais in 2018 from 400.8 billion the year before, thanks to the benchmark Selic interest rate being anchored at a record low of 6.50 percent for most of the year.

Brazil’s public sector gross debt in December was 5.27 billion reais, or 76.7 percent of GDP, down slightly from 77.3 percent of GDP the month before, the central bank said.

($1 = 3.65 reais)

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