By Marcela Ayres
BRASILIA (Reuters) -Brazil’s central government met its 2024 primary budget target, Treasury data released on Thursday showed, defying more pessimistic market forecasts with the support of one-time revenues and strong dividends that may not recur.
The primary budget deficit of 43 billion reais ($7.31 billion) was equivalent to 0.36% of gross domestic product.
However, the deficit stood at 0.09% of GDP, excluding 32 billion reais in expenditures not considered by law in the goal calculation, such as costs related to unprecedented flooding in the state of Rio Grande do Sul.
As a result, President Luiz Inacio Lula da Silva’s leftist administration achieved its target of a zero primary deficit, with a 0.25% tolerance margin, meaning the maximum shortfall was 28.8 billion reais.
“The results are significant in terms of fiscal recovery, there’s no way of denying that,” said Treasury Secretary Rogerio Ceron.
He acknowledged, however, that given the challenges of the economic scenario, including global uncertainties, this might require “greater determination on our part.”
Ceron stressed that the government is monitoring the need for additional fiscal measures to ensure this year’s target is met and will propose them if necessary.
At the beginning of 2024, economists surveyed weekly by the central bank had forecast a primary deficit of 0.8% of GDP, but they revised their estimate to a 0.5% deficit in the year’s final poll.
The primary surplus was 24 billion reais in December.
Fiscal performance was supported by strong real growth in tax revenues, helped by collections stemming from changes to investment fund and offshore taxation, which generated stronger revenue exclusively last year. Larger dividend payments from state-owned companies and the early payment of some 2024 expenses in 2023, including part of the government’s heavy court-ordered payments bill, also contributed.
Many critics argue that the result is not sustainable and that challenges remain in meeting the 2025 target, which again calls for a zero primary deficit with the same 0.25% tolerance margin.
Despite strong GDP growth, which Lula said on Thursday may have reached 3.7% last year, the government was unable to exit deficit territory.
While net revenues rose by 8.9% in real terms in 2024, expenditures declined by 0.7%, compared with the previous year when they had been affected by the early payment of court-ordered payments.
According to Ceron, without this effect, expenditures would have grown by around 3.5% in real terms in 2024.
The increase in mandatory spending, including social benefits, pension payments and public salaries, is considered a key vulnerability in public finances, driving pressure on the growing debt of Latin America’s largest economy.
The government claims it made a strong fiscal adjustment after recording a deficit equivalent to 2.09% of GDP in 2023.
($1 = 5.8814 reais)
(Reporting by Marcela Ayres; Editing by Richard Chang and Leslie Adler)
