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Brazil may not need added clampdown on spending, sees revenues up

BRASILIA, July 20 (Reuters) - Brazil’s government may not need a further freeze spending to meet fiscal goals because revenues are expected to recover in the second half of the year as the recession-hit economy stabilizes, government officials said on Wednesday.

Local media reports have said the government was considering freezing an additional 20 billion reais ($6.17 billion) in spending to meet its primary budget deficit target of 170.5 billion reais as tax revenues continue to drop. The announcement was expected on Friday with the release of a fiscal balance report.

However, three officials contacted by Reuters said that the hefty deficit target already envisions the drop in revenues, which have started to stabilize and could pick up in the second half.

“The government believes that given the numbers detailed in the target there is no need to freeze,” said one official briefed on the matter, who asked for anonymity to speak freely. “Revenues have also stopped falling and may recover in the second semester.”

Interim President Michel Temer’s chief of staff, Eliseu Padilha, told reporters later on Wednesday that the government will use all its alternatives to avoid a freeze. He said the government could securitize part of the debt it is owed to raise revenues.

The government is considering securitizing up to 60 billion reais in debt to reduce its budget deficit, Planning Minister Dyogo Oliveira said on July 14.

Temer, who replaced President Dilma Rousseff pending her impeachment trial, has vowed to rebalance public accounts to regain the confidence of investors.

A severe recession that started last year has curbed tax revenues, eroding fiscal accounts already compromised after years of heavy public spending. The primary balance, or budget result before interest debt payments, is a key indicator of a country’s financial health.

Improving business confidence has raised hopes within the government that the economy, while stabilizing later this year, will grow again in 2017.

The International Monetary Fund on Tuesday said the recession in Brazil will be less severe than previously forecast this year due partly to some recovery in oil and commodities prices. The IMF sees the Brazilian economy contracting 3.3 percent his year and growing 0.5 percent in 2017.

Fiscal and political challenges prompted rating agencies to strip Latin America’s largest economy of its coveted investment-grade rating last year. ($1 = 3.2423 Brazilian reais) (Additional reporting by Lisandra Paraguassu; Editing by Tom Brown)