June 5, 2020 / 10:17 PM / a month ago

Brazil government's 2020 deficit forecast already looking 'optimistic': Treasury Secretary

FILE PHOTO: Brazil's Secretary of the Treasury Mansueto Almeida attends an interview with Reuters in Brasilia, Brazil February 12, 2020. Picture taken February 12, 2020. REUTERS/Adriano Machado

BRASILIA (Reuters) - Brazil’s official budget deficit target for this year of 10% of gross domestic product is already looking optimistic, Treasury Secretary Mansueto Almeida said on Friday, a sign of the huge pressure on public finances from the coronavirus crisis.

The government revised its primary deficit forecast, which excludes interest payments, to 10% of GDP only two weeks ago. But Almeida said that tax revenues could be lower than expected and warned against extending emergency spending programs.

“We are going for a primary deficit of 10% of GDP this year. Could it be worse? It could be worse,” Almeida said in an online debate hosted by Verde Asset Management.

This target is based on postponed tax payments because of the crisis being made in the second half of the year and emergency spending measures not being extended, Almeida said.

Almeida insisted that emergency payments to informal, low-paid workers of 600 reais ($121) a month for three months, which will total around 150 billion reais, cannot be extended.

Making the program permanent would increase the government’s primary expenditure by a further 8% of GDP and the tax load would have to rise by 10% of GDP.

“That makes no sense at all,” he said, noting that even extending it to the end of the year would increase Brazil’s debt to more than 100% of GDP.

While the government this year will stick to its spending cap rule, regarded by policymakers as the country’s fiscal pillar, Almeida admitted that the situation becomes more difficult in 2021 if revenues and economic growth undershoot expectations.

“This worries us. It’s something we’ll have to deal with and try to reverse,” he said, adding that it may be six years before federal revenues return to pre-crisis levels.

Reporting by Gabriel Ponte; Writing by Jamie McGeever; Editing by Sandra Maler and Cynthia Osterman

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