Brazil's Government Spending Rises, Driving Higher-Than-Expected May Deficit

• Brazil's central government posted a larger-than-expected primary budget deficit in May, pressured by increased pension benefits, the Treasury said on Wednesday, June 26.
• The deficit, excluding interest payments, totalled 60.983Bn reais (US$11.06Bn), larger than the 54.2Bn reais shortfall forecast by economists in a Reuters poll.
• Government spending rose by 14% in real terms from a year earlier, driven by an uptick in pension benefits, compared to a 9% increase in net revenues.
• Tax collection in Brazil has been hitting successive monthly records. However, the market does not see this as enough to back the government's fiscal target of erasing the primary deficit this year. This is due to the rapid expansion of many mandatory expenditures and President Luiz Inacio Lula da Silva's reluctance to cut spending.
• Treasury Secretary Rogerio Ceron said that changes to the 2024 fiscal target are not on the table, underlining that the government believes the target to be "viable."
• Speaking at a press conference, he acknowledged the importance of addressing the growth of pensions to avoid incompatible dynamics with the spending limit. Ceron indicated that additional measures would be taken if needed to meet the fiscal target. He further added that a review of registries is underway to identify beneficiaries ineligible for government support policies.
• Overall, the Treasury said that in the 12 months through May, the central government's primary deficit reached 2.36% of gross domestic product (GDP).

 (Source: Reuters)