More Grim Numbers in Brazil as Targeted 2018 Budget Gap Widens

(Bloomberg) -- Brazil’s government downscaled its 2018 fiscal ambitions in another sign that efforts to shore up battered public finances in Latin America’s largest economy are proving more difficult than expected.

President Michel Temer’s administration is now projecting a central government primary budget deficit of 129 billion reais ($41 billion) next year compared with the previous targeted 79 billion reais gap. For 2017, the central government’s shortfall is projected at 139 billion reais, Finance Minister Henrique Meirelles told reporters in Brasilia on Friday.

The announcement is the latest in a series of setbacks for the Temer administration that are leaving investors on edge. Low public support and lawmaker opposition to a flagship pension reform proposal are increasing skepticism in Temer’s capacity to get Latin America’s largest economy back on track. Unemployment has climbed to a record high, and after two years of contraction, growth this year is predicted to come in at just 0.5 percent.

"The recession was, in fact, deeper than expected," Meirelles said. "There was an impact on projected tax revenues."

Brazil’s fiscal woes are mounting as the slow economic recovery continues to weigh on tax income. Policy makers on March 29 said they will tackle the 58.2 billion reais shortfall of this year’s budget target mainly by freezing spending and by undoing some payroll tax breaks.

Meanwhile, the government is prepared to give up as much as one-fifth of the potential savings from its pension reform bill to ensure its approval in Congress, according to a person with direct knowledge of the matter. The government argues that the reform of Brazil’s relatively costly pension system is essential to putting its public accounts on a sustainable trajectory. Labor unions and lawmakers have decried the proposal, saying it deprives citizens of their constitutional rights.

To contact the reporters on this story: Rachel Gamarski in Brasilia at rgamarski@bloomberg.net, Matthew Malinowski in Brasilia at mmalinowski@bloomberg.net.

To contact the editors responsible for this story: Raymond Colitt at rcolitt@bloomberg.net, Bruce Douglas