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Brazil has registered a 124bn BRL primary deficit last year.

This week, Brazil’s federal government published its primary results for 2017: a deficit of 124.4 billion BRL. This number doesn’t take into account payments with the country’s public debt. Which means that even before paying back its creditors, Brazil has spent more – far more – than its revenue.

The government, however, was quick to capitalize on the news, claiming that the primary deficit is much better than Congress’s goal of 159-billion BRL. While it may be true, 2017’s results remain the second-worst in the country’s history. And as a matter of fact, Brazil has registered a primary deficit in each year since 2013.

Brazil’s financial crisis became flagrant during the country’s primary results back in 2014. While expenditure kept its upward trend, the government was raising less money due to recession and unemployment, which hampered consumption levels. The trend began to shift in 2017, but not enough for a positive result.

Bad, but better than expected

Despite having registered one of the worst results in its history, Brazil’s government managed to reduce the deficit from 2016. Finance Minister Henrique Meirelles hopes that it will be enough to inspire confidence in the financial markets. This is especially so since a recent decision taken by ratings agency S&P to downgrade Brazil’s sovereign debt further into junk territory, from “BB” to “BB-“.

Brazil was downgraded due to the government’s inability to approve the extremely unpopular pension system reform. The presidential coalition is trying to gather the necessary 308 votes to pass the bill in the House in February. If that doesn’t happen then the inflation rate could start increasing, per the president of the Central Bank, Ilan Goldfajn.

House Speaker Rodrigo Maia has promised to schedule a vote for February 19 – but even he admits that the task will be anything but easy.

Many factors contributed to the positive result, including: the economic recovery (which helped the government raise more money from taxes); an increase of extraordinary revenue (made possible by renegotiating debts from private firms); and severe austerity measures.

Where the cuts were made

According to the Ministry of Finance, non-mandatory expenses were cut by 22 percent in 2017. Public investment is also at its lowest level over the past decade. Investments were down by 32 percent in 2017, at only 46.2 billion BRL – which represents less than 1 percent of the federal budget. That worries many experts, who point out that public investment is crucial to the Brazilian economy.

Meanwhile, the government is continually spending more with salaries, up by 6.5 percent in 2017.

For 2018, the Ministry of Planning and Budget has announced that it will slash 21 billion BRL from the federal budget. Of that total, 13 billion BRL will be temporarily frozen. The government expects to raise approximately 12 billion BRL with the privatization of Eletrobrás, the state-owned energy company.

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MoneyJan 31, 2018

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BY The Brazilian Report

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