August 10, 2017 / 7:05 PM / a year ago

Brazil likely to raise 2017-18 budget gap goals to 159 billion reais: sources

BRASILIA (Reuters) - Brazil will probably raise its budget deficit targets for 2017 and 2018 in an announcement planned for Monday, to cope with lower than expected tax revenues in its slow economic recovery, government sources said on Thursday.

The goals will likely be revised to a primary deficit of 159 billion reais ($50.4 billion) for each year, from 139 billion reais for 2017 and 129 billion reais for 2018 currently, according to the sources, who requested anonymity.

The government had been expected to announce the revised target on Thursday after a meeting between President Michel Temer, Cabinet ministers and legislators at the presidential palace.

Finance Minister Henrique Meirelles earlier this week said a decision to revise the targets was unlikely to be made over the next 60 days.

However, growing pressure from legislators unwilling to endorse tax hikes has prodded the government to consider a less ambitious target and raise the deficit goal, the sources said.

Investors have signaled a larger 2017 budget target would not affect Brazil’s investment risk perception, but it remained uncertain whether a new goal for 2018 too would be perceived by financial markets as a signal of wavering fiscal discipline.

Temer has pursued a legislative agenda that includes a major overhaul of the pension system, tax hikes and changes in election rules.

Lawmakers have warned that Temer may lack support for all these policies after he recently faced corruption charges.

The government was also set to announce the postponement of pay hikes to public servants to January 2019 instead of in 2018, in a bid to show it remains committed to austerity, one of the sources said.

The primary budget deficit excludes the expenditure to pay interest on the government’s debt. As such, it is closely watched by investors as sign of a country’s capacity to meet debt service payments.

Reporting by Marcela Ayres and Ricardo Brito, writing by Silvio Cascione; editing by W Simon and Richard Chang

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