UPDATE 1-Brazil primary budget surplus slips in June from May

Tue Jul 30, 2013 10:04am EDT

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* Primary surplus falls slightly to 5.4 bln reais in June

* Analysts question if budget freeze is enough

BRASILIA, July 30 (Reuters) - Brazil's primary budget surplus narrowed slightly in June from the previous months, central bank data showed on Tuesday, but its share of the gross domestic product shrunk on annual basis.

The country's primary surplus was 5.43 billion reais ($2.40 billion) in June, down from 5.68 billion reais in May.

The primary budget balance, which represents the public sector's excess revenue over expenditures before interest payment on its debt, was expected to reach a surplus of 3.5 billion reais according to the median forecast of 12 analysts surveyed by Reuters.

President Dilma Rousseff's government announced a spending freeze of 10 billion reais last week in a move to regain investors' confidence and reach an already reduced primary target equivalent to 2.3 percent of gross domestic product.

Still, most analysts say the freeze will be insufficient to improve the government finances, which are dominated by current expenditures like public servants' wages and benefits.

The primary balance is a gauge closely watched by investors because it measures a country's ability to service its debt. The government missed its primary surplus target in 2012 and will miss it again this year as a slew of tax breaks aimed at reviving the economy hits revenues.

In the 12 months through June, the primary surplus was equivalent to 2.00 percent of GDP, much lower than the 2.71 percent posted during the same period a year ago.

Even with the deterioration of the public finances the public sector's net debt remained relatively stable in June at 34.5 percent of GDP versus 34.8 percent the previous month.

However, the country's gross debt has climbed in recent years, according to calculations by private economists and multilateral institutions. Last week, Brazil asked the International Monetary Fund to review the way it calculates the country's gross debt.

The country posted an overall, or nominal, budget deficit of 12.198 billion reais in June.

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