BRASILIA, (Reuters) – The Brazi-lian government yesterday for the first time ever sent Congress a budget bill that forecasts a primary deficit and urged lawmakers to help fix a fiscal crisis that threatens the country’s investment-grade rating.
President Dilma Rousseff proposed a 2016 budget bill that forecast a primary deficit of the non-financial public sector of 0.34 percent of the gross domestic product. Earlier this year the government, which has always proposed primary surpluses, expected a surplus of 0.7 percent in 2016.
The deficit projection underscored Rousseff’s need to find new sources of revenue as tax collection plummets and she faces resistance in Congress to unpopular austerity measures.
Planning Minister Nelson Barbosa said the government will work closely with Congress to come up with spending reforms to reverse the shortfall.“We are open to a dialogue to erase the temporary primary deficit,” Barbosa said in a press briefing. “What is important now is to have a realistic budget.”
The government adjusted its forecast after lawmakers and business leaders opposed Rousseff’s proposal to revive a tax on financial transactions to raise extra revenues next year.
The primary budget balance, which shows how much current revenue is available to meet interest payments, is closely watched by markets and Wall Street credit rating agencies as a gauge of a country’s capacity to repay its debt.
The agencies have warned they may further downgrade Brazil, a move which could undermine investor confidence and raise borrowing costs.
“The government is apparently throwing in the towel and is now enjoining Congress in the quest to identify additional revenue sources,” Alberto Ramos, economist with Goldman Sachs, said in a note to clients.
The real weakened nearly 3 percent against the U.S. dollar earlier on Monday on fears of a credit ratings downgrade before paring losses to end the day 1 percent weaker. Interest rate futures <0#2DIJ:> rose on fears a weaker real could push the central to raise borrowing costs.
Barbosa said the government will work on reforms in coming weeks to limit the growth of obligatory expenditures linked to pensions, health and education. About 90 percent of Brazil’s overall expenditures are earmarked by law, meaning the government has little room to cut public spending.
Years of heavy public spending under Rousseff have eroded the public accounts to the point that Brazil recorded its first primary deficit in over a decade in 2014.
