Brazil to use repatriation funds to avert spending freeze: source

Pedestrians walk across Paulista Avenue in Sao Paulo's financial district, April 8, 2014. REUTERS/Paulo Whitaker

BRASILIA (Reuters) - The Brazilian government will use the proceeds from an amnesty program legalizing Brazilians’ undeclared foreign assets to avoid a spending freeze this year, a source familiar with the matter told Reuters on Thursday.

Falling tax revenues have raised fears the government could be forced to freeze some expenditures to meet its 2016 primary deficit goal of 163.9 billion Brazilian reais ($51.2 billion).

“We will not announce a freeze. The repatriation program will cover that hole,” said a government official who asked not to be named because he is not allowed to speak publicly.

The so-called repatriation program grants amnesty to Brazilians that pay a fine and taxes on undeclared assets held abroad. The program is due to end by Oct. 31, but some senior lawmakers have said they could introduce changes to the program to extend the deadline.

The government will release later on Thursday a bimonthly fiscal report detailing how authorities plan to achieve their primary budget target, a key measurement of the country’s financial health.

The report will add an initial estimate of around 6 billion reais in revenues from the repatriation program, the official said. Originally the government had expected to collect 21 billion reais and some officials have said that number could go as high as 50 billion reias.

The central government’s primary balance is the federal budget result before interest debt payments. A sharp drop in commodity prices, profligate public spending and a crippling recession have transformed Brazil’s once hefty budget surpluses into record shortfalls.

The public sector’s overall budget deficit, which includes interest debt payments, has soared to about 10 percent of gross domestic product from less than 2 percent five years ago.

($1 = 3.2016 Brazilian reais)

Reporting by Alonso Soto; Editing by Meredith Mazzilli