Economy

Brazil to cut $23B from 2015 budget

Government says cuts needed to hit fiscal targets, restore economic growth

23.05.2015
Brazil to cut $23B from 2015 budget

By Ben Tavener

SAO PAULO

 Brazil will cut its 2015 budget by an historic 67 billion Brazilian reais  ($23 billion) to ensure the government hits its fiscal targets this year, planning minister Nelson Barbosa announced Friday.

The government also said the austerity measures, the biggest spending freeze in the country's history, would act as a "first step" to returning the Brazilian economy to economic growth.

Barbosa said 38 percent (25.7 billion reais) of savings would come from cuts to the government's Growth Acceleration Program – the ruling government's flagship program funding new infrastructure projects. Another 32 percent (21.4 billion reais) from so-called parliamentary amendments – resources that parliamentarians allocate for projects in their towns and cities.

Given their sizeable budgets, the individual ministries most affected by the austerity measures in absolute terms were Cities, Health and Education with budgets cut by 17.2 billion reais, 11.8 billion reais and 9.4 billion reais, respectively.

The ministries' budgets, however, still remain well above constitutionally-established minimums.

The planning minister also said the cuts, which do not require approval from Congress, were calculated "with care to preserve social programs", such as the Bolsa Família, a benefit paid to families who ensure their children are educated and vaccinated.

Barbosa said he hoped the economy would begin to show signs of improvement in the second half of 2015.

"For the economy to recover, for growth to recover, we need to make an effort toward fiscal balance. It was necessary to block 66.9 billion reais to achieve the federal government's fixed primary surplus target this year," Barbosa told reporters.

The government is now aiming for an adjusted primary surplus target of 1.1 percent of GDP this year, after seeing a primary deficit in 2014, of 32.5 billion reais -- the first in at least 13 years.

Analysts say the budget cuts, coupled with previously-announced tax hikes in a range of areas, are intended as an olive branch to domestic and international markets.

Speaking in Rio de Janeiro earlier Friday, IMF Managing Director Christine Lagarde said the scale of the budgetary cuts being planned was welcome and set Brazil "on the right path" to restore growth.

The government said it had arrived as its calculations for the new cuts based on fresh 2015 GDP forecasts. Officials now believe Brazil's economy will contract 1.2 percent this year.

Inflation is also forecast to reach 8.3 percent annualized this year, well above the official target of 4.5 percent with a plus-or-minus tolerance range of two percentage points.

The new austerity measures represent a major U-turn in fiscal policy for President Dilma Rousseff whose first term was dominated by attempts to stimulate Brazil's economy back to growth. She was narrowly re-elected to a second term in office last year.

After arriving in office with growth of 7.6 percent in 2010, Rousseff's first term saw economic expansion dwindle to 0.1 percent in 2014.

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