March 23, 2020 / 3:15 PM / 5 days ago

Brazil govt support for coronavirus-hit economy to have little impact -Moody's

BRASILIA, March 23 (Reuters) - Measures announced by Brazil’s government to soften the economic blow from coronavirus will come at some fiscal cost and still fail to prevent severe damage to growth and employment, credit ratings agency Moody’s said on Monday.

The government last week unveiled a near-150 billion reais ($30 billion) support package, mostly bringing forward social assistance payments, deferring company taxes, and making it easier for people to access workers’ severance funds.

Virtually none of that is new cash, and the government is keeping expenditure below its spending cap and in line with its broader fiscal and structural reform agenda. But its fiscal wriggle room remains limited, Moody’s warned.

“Although these measures will mitigate some of the impact on economic activity, the negative impact on employment and growth remains severe, Moody’s said, noting that the government last week lowered its 2020 economic growth outlook to zero from 2.1%.

“The government’s ability to provide a stronger fiscal response is constrained by its fiscal deficit,” Moody’s added, estimating it at around 7% of gross domestic product this year.

Minutes from the central bank’s last policy meeting released on Monday showed that policymakers were reluctant to cut interest rates by more than the 50 basis points delivered in part due to concerns over economic reforms and increasing strains on the public finances.

Brazil’s nominal budget deficit last year, including interest payments, was 5.7% of GDP, the smallest in five years and down from 7.3% the year before. (Reporting by Jamie McGeever; editing by Diane Craft and Marguerita Choy)

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