In Fiscal Setback, Brazil Posts Primary Deficit for February

In Fiscal Setback, Brazil Posts Primary Deficit for February

The deficit makes meeting a target of a surplus of 1.2% of gross domestic product more difficult


Brazilian Finance Minister Joaquim Levy speaks to a Senate panel in Brasília on Tuesday. PHOTO: AGENCE FRANCE-PRESSE/GETTY IMAGES



March 31, 2015 3:52 p.m. ET

BRASÍLIA—Brazil took a step back in February on efforts to boost government savings, a cornerstone of Finance Minister Joaquim Levy’s plan to bring Latin America’s largest economy back to balance.

The Brazilian government recorded a 2.3 billion Brazilian reais ($712 million) primary deficit in February, the country’s central bank said Tuesday. In January, there was a primary surplus of 21.1 billion reais. Primary surplus is a measure of government savings that includes all government revenue and spending before interest payments.

February’s deficit makes it harder to meet this year’s target of a surplus of 1.2% of gross domestic product, an aggressive goal set by the government to win back credibility with foreign investors as well as domestic business leaders and consumers.

The fiscal effort comes in the wake of years of excessive spending, as President Dilma Rousseff sought to ward off the effect of a global slowdown.

But even after years of stimulus, Brazil’s economic growth was a dismal 0.1% in 2014. Forecasts point to a contraction this year and small growth in 2016. Strong government spending has also fueled inflation, which is hovering near 8%. In response, Brazil’s central bank has boosted its benchmark Selic rate to 12.75%, among the highest in the world.

Ms. Rousseff narrowly won a second term in October’s elections and hired Mr. Levy to conduct a belt-tightening effort and avoid a looming credit downgrade to junk status.

Testifying before a Senate panel on Tuesday, Mr. Levy said that it is necessary to revert years of growing debt, something achievable by delivering primary surpluses, in order to preserve investment grade.

“We must correct the fiscal trajectory,” he said. “The time has come to revert our anti-cyclical measures.”

Improving the primary surplus is what the government can do to help fixing the economy, economists say.

The primary “has to improve” because it is creating a perception of risk that makes markets put a higher price on Brazilian borrowing, said Bruno Rovai, an economist at Barclays in New York.

But Mr. Rovai said it would require “a very large effort” and that Brazil will likely keep showing a 12-month rolling primary deficit until June.

In 2014 Brazil recorded its first annual primary deficit since 1997, the equivalent of 0.63% of GDP. In January it went slightly down to 0.61% of GDP, but in February went up to 0.69% of GDP.

Mr. Rovai said the government’s 2015 target of 1.2% of GDP isn’t feasible and a 0.8% surplus is more likely. But he said that as long as President Rousseff’s administration continues to show resolve in increasing savings, credit-ratings firms probably will leave the country’s debt at investment grade.

A sustained effort would include extensive talks with Congress to pass potentially unpopular measures, something Mr. Levy has taken pains to do. He has been meeting frequently with parliamentary leaders who are often hostile to his boss, Ms. Rousseff.

Approving those belt-tightening measures is fundamental for Brazil to start showing an annual primary surplus in the second half of the year, Mr. Rovai said.

Another fiscal figure, the nominal deficit, which includes interest payments, went up in February to 7.34% of GDP, an “extremely large” gap, according to a Goldman Sachs’ report by economist Alberto Ramos. That was up from 6.42% in January.

Gross debt in February was 65.5% of GDP, up from 64.4% in January.

Write to Paulo Trevisani at

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