Brazil Freezes Spending at $3.33Bn to Comply with Fiscal Rules

• Brazil's government tightened spending controls late on Friday, freezing expenditure at 19.3Bn reais ($3.33Bn) to comply with this year's fiscal rules. The figure exceeds the 13.3Bn reais of spending announced in a previous report in September, according to a bi-monthly revenue and expenditure report from the Planning and Finance Ministries.
• The government also revised its 2024 primary deficit forecast to 28.7Bn reais, slightly up from the previously projected 28.3Bn reais, yet remaining within the fiscal target of a zero deficit for the year, which allows for a tolerance margin of 0.25 percentage points of GDP in either direction, permitting a shortfall of up to 28.8Bn reais.
• The 6Bn reais increase in the spending freeze came as the government projected higher mandatory expenditure for this year, primarily driven by higher social security benefits, which would have breached a legally established spending cap.
• The rapid growth of mandatory spending has fueled market concerns about the sustainability of Brazil's fiscal framework, affecting long-term interest rates. It also affected the Brazilian real, which has weakened more than 16% against the dollar year-to-date.
• Finance Minister Fernando Haddad said a long-awaited package to curb mandatory spending is expected to be announced next week. The government had indicated that the measures would be unveiled after municipal elections held at the end of October, but a delay in presenting the package has dampened market sentiment.

(Source: Reuters)