Finance Minister Admits Brazilian Economy Has Had a Tough Year

11/08/2013 - 08h28

In conversation with interlocutors, the finance minister Guido Mantega has recognized that the Brazilian government is going through "hard times" fiscally, and that the primary surplus - the funds the government uses to service its debts - "will not be what we had imagined."

This cautious assessment of the situation differs from that which has previously been made public. Mantega admitted that "it has been a difficult year." However, he argued that there is no cause for alarm, and that the surplus "will be sufficient to maintain stability of public finances and of the economy."

In September, the public sector registered a record primary deficit (revenues minus expenses, except for debt interest). Moreover, in the first nine months of this year, surplus was just R$44.9 billion (US$ 19.5 billion), or 1.28% of GDP. This was well below the target of R$111 billion (US$ 48 billion), or 2.3% of GDP.

While affirming that the government is still committed to reaching this target, Mantega indicated that it is unlikely to be achieved in its totality. "We're doing everything we can to reach as close to that figure as possible," he said. He also reiterated that Brazil will still have one of the world's largest surpluses, enough to keep public debt under control.

The minister said that Brazil will not lose its credit rating - a mark provided by ratings agencies to economies considered to be at low risk of bankruptcy. He was also upbeat about the prospects for next year, asserting that the evaluation of the ratings agencies of Brazilian fiscal policy would be "much better."

Sebastião Moreira/Efe

Finance minister Guido Mantega has recognized that the Brazilian government is going through "hard times" fiscally

Mantega's confidence is based upon government policy to be implemented in the coming months. He revealed that the government is to reverse its policy of tax exemptions for durable goods such as cars and electrodomestics. This will be possible because "the appetite for consumption is returning, moderately."

He also said that the government has yet to decide what will be the surplus target adjusted for next year. In the proposed budget, the goal is set at 3.1% of GDP. Mantega believes that a more ambitious target provides a challenge for the public sector.

This year the government revised the target to 2.3%. For next year - an election year - the market is expecting a maximum of 1.8%. The government's targets are considered reasonable by analysts, though they criticize the attempts to conceal negative results, both in public discourse and by the use of accounting maneuvers.

Translated by TOM GATEHOUSE

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