Brazil raises 2023 deficit estimate, fuelling market jitters

BLOOMBERG

Brazil raised its estimate for this year’s budget gap to account for rising government spending and declining revenue amid a weakening economy. The primary fiscal deficit, which doesn’t take into account interest payments, will reach 177.4 billion reais ($36.1 billion) this year, compared with a previous forecast of 141.4 billion reais, according to an official report.
Public expenses were revised up by an additional 21.9 billion reais, while revenues are forecast to be 22.8 billion reais lower. The Brazilian real briefly erased gains when the new estimates were published, weakening as much as 0.4% in Sao Paulo, as investors worry that President Luiz Inacio Lula da Silva will push to further boost spending in 2024 to shore up an expected decline in Latin America’s largest economy. Investors’ fiscal concerns also threaten a recent rally that pushed Brazilian stocks near record highs. “This is just the confirmation of what we have been alerting: that expenditure was underestimated and revenue overestimated,” said
Alberto Ramos, chief economist for Latin America at Goldman Sachs Group Inc. “These developments make it abundantly clear that the government has little inclination to contain spending, much less cut it.” Worries about Lula’s unwillingness to rein in public spending have been growing since the president said his administration was unlikely to meet Finance Minister Fernando Haddad’s pledge to eliminate the deficit next year because that would require cutting billions of reais from projects that are a priority for the government.