Brazil's Bolsonaro says government must cut another 2.5 billion reais

Slideshow ( 2 images )

BRASILIA (Reuters) - President Jair Bolsonaro said on Saturday that Brazil’s federal government will need to cut its budget by 2.5 billion reais ($667 million) next week, website UOL reported, as weak economic growth continues to squeeze revenue.

“We want to prevent the government from stopping, as our budget is completely compromised. There must be a new cut now. What should happen is a new cut of 2.5 billion,” UOL quoted Bolsonaro as telling reporters outside his official residence.

Brazil’s economy is struggling to emerge from a crippling recession and Bolsonaro’s government is focused on passing through Congress a pension reform plan that it has said will prop up public finances and kickstart growth.

Bolsonaro’s comments on Saturday suggest that cuts will be made when the Economy Ministry publishes its latest bimonthly fiscal report on Monday so the ministry can adhere to its fiscal rules.

Brazil had been hoping to avoid announcing a fresh round of budget freezes next week, Bolsonaro’s chief of staff said on Thursday, adding that economic stimulus measures are also expected to be announced next week.

The Bolsonaro administration’s first bimonthly expenditure and spending review in March called for a spending freeze affecting almost 30 billion reais ($8 billion), while in May the government dipped into a 5 billion reais reserve fund to avoid further austerity.

The government is in a tight spot. Revenues are being squeezed because growth is so weak - the government last week halved its 2019 growth forecast to 0.8% - but there is barely any fat left in the budget to trim.

The government next week will announce details on the release of funds from FGTS workers severance funds and a workers’ social contribution fund known as PIS/Pasep, probably on Wednesday or Thursday. Economy Minister Paulo Guedes said this week that 42 billion reais would be freed up from FGTS funds and 21 billion reais from the PIS/Pasep funds, newspaper Valor Economico reported.

Reporting by Marcela Ayres; Editing by Will Dunham