Brazil Unlikely to Meet Primary Surplus Target in 2016

By Lise Alves, Senior Contributing Reporter

SÃO PAULO, BRAZIL – The Brazilian government is expected to announce this week a significant cut in the 2016 budget to try to balance public accounts. According to economists however, the reduction is not likely be sufficient for the government to meet its target of a primary surplus of 0.5 percent of the GDP, equivalent to R$30.5 billion, this year.

Instead, financial institutions surveyed by Brazil’s Central Bank in its weekly Focus Survey forecast a primary deficit of 3.21 percent of the GDP. This is the third consecutive week that analysts have increased the GDP deficit for this year.

The forecast for the net debt of the public sector increased for 2016 from forty percent in the previous survey to 40.2 percent of the GDP and should continue to grow, with the forecast of reaching 43 percent of the GDP in 2017. If the deficit is confirmed at the end of the year, it will be the third consecutive year that Brazil has closed in negative territory

Other economic indicators are also not favourable to the government. The median inflation index (IPCA) continues well above the government’s target of 4.5 percent (6.5 percent being the upper limit of the target), at 7.56 percent. The retraction of the country’s industrial production also increased from the previous survey, from 3.80 percent to 4.0 percent.

Institutions surveyed for the report also believe that the foreign exchange rate is likely to continue to hover around the present levels and do not forecast an appreciation of the Brazilian real anytime soon. According to analysts the foreign exchange rate at the end of 2016 is likely to be around R$4.35/US$1, increasing slightly to R$4.40/US$1 in 2017.