(Adds central bank and analyst comments, data and context)
By Alonso Soto
BRASILIA, June 30 Brazil posted in May its
second-widest monthly primary budget deficit ever, a
worse-than-expected result that puts at risk the country's key
fiscal and debt servicing goal for the year.
The country's public sector ran a primary budget deficit of
11.046 billion reais ($5 billion), central bank data showed on
Monday, worse than market expectations for a deficit of 9.25
billion reais. It was the widest primary deficit on record
after the 20.951 billion reais gap posted in December 2008.
Closely watched by financial markets, the primary budget
balance is a key gauge of the country's creditworthiness. It
measures how much government revenue can be earmarked to meet
interest payments on the debt.
A negative primary balance means that, strictly speaking in
conceptual terms, there was insufficient revenue in May to meet
all expenditures, including interest obligations.
However, debt payments are made with annual fiscal accounts
For 2014, Brazil's public sector targets a primary budget
surplus of 1.9 percent of the gross domestic product - but the
latest data from May stirred doubts that threshold could be
"It will be very difficult for the government to meet the
1.9 percent of GDP fiscal target in 2014 unless it is able to
count on significant extraordinary non-recurrent revenue,"
Alberto Ramos, senior economist with Goldman Sachs, said in a
Failure by President Dilma Rousseff to meet Brazil's primary
budget goal could not only keep pressure on already-high
inflation, but also hurt business confidence, which is
considered one of the main reasons for Brazil's subpar economic
growth over the past three years.
In the first five months of 2014, the government has been
able to meet 32 percent of its primary surplus target for the
whole year. The government pledged to save at least 99 billion
reais this year in primary surplus, or 1.9 percent of the
Still, central bank head of economic research Tulio Maciel
told reporters it was too early to know whether the government
would be able to meet its target.
He argued that May's deficit was due to an increase in
public investment and a drop in revenues. He said revenue could
get a boost in coming months from dividends of state-run
Brazil had a primary surplus of 16.896 billion reais in
April due to concession bonuses and state company dividends. The
primary budget represents the public sector's revenue over
expenditures before debt interest payments.
Waldemir Quadros, a professor with the Pontifical Catholic
University of Sao Paulo, said he fears the government may again
resort to alternative accounting methods or obscure operations
to meet the target.
In 2012, the government was criticized for last-minute
transfers from a sovereign fund to boost its accounts before the
end of the year.
In a controversial decision, the administration last week
gave the green light to the sale of billions of dollars worth of
offshore oil rights to state-run oil company Petrobras
. Rating agencies warned the sale will likely strain
the company's finances.
The government will get about 2 billion reais from the sale
this year alone.
Brazil's public finances have deteriorated rapidly under
Rousseff after she gave tax breaks to dozens of industries in an
attempt to restart the country's stagnant economy.
Although the country's net debt is small compared to other
major economies, it is no longer declining as it was in the past
decade. The country's net debt as percentage of GDP climbed to
34.6 percent in May, the highest since October of last year.
(Additional reporting by Patricia Duarte and Silvio Cascionem
Editing by Walter Brandimarte, Chizu Nomiyama and W Simon)