Brazilian government officials renew fiscal balance pledge

SAO PAULO (Reuters) – Brazilian government officials on Wednesday reaffirmed their commitment to balancing public accounts, as financial markets continue to question the ability of President Luiz Inacio Lula da Silva’s administration to meet its fiscal targets.

Lula’s chief of staff, Rui Costa, and Treasury Secretary Rogerio Ceron spoke out in favor of fiscal balance, opening the door for potential new spending containment measures if needed to achieve previously set goals.

The government says it likely ended last year with a deficit of 0.1% of gross domestic product, within its zero-deficit target that had a tolerance margin of 0.25% of GDP in either direction.

However, uncertainties regarding the achievement of fiscal targets in the coming years and analysts’ projections pointing to a rising debt trajectory have weighed on market sentiment, contributing to recent weakness in Brazil’s currency.

“The president has reaffirmed and has been fulfilling his commitment to fiscal balance,” Costa said in an interview with state-run broadcaster TV Brasil.

“When needed, at any time, we will make the necessary adjustments so that the fiscal commitment is met. The government can only spend what it collects, otherwise it generates inflation and bad expectations for the country.”

A long-anticipated package of spending cuts disappointed markets late last year, further weakening Brazil’s real, which weighed on inflation expectations and contributed to the central bank’s monetary policy tightening.

Itau economists noted on Tuesday that the credibility of the government’s fiscal framework for generating sustainable fiscal trajectories in the medium term, even if strictly adhered to, had “deteriorated significantly.”

That was due to the perception that the rule does not offer the prospect of stabilizing public debt unless there is a significant increase in revenues, they said in a report, while noting that the risk of non-compliance had increased.

But Ceron questioned market views and, echoing Costa, reiterated the government’s commitment to the fiscal rules.

“Our greatest divergence with the market is that it believes there is still a large gap for us to be able to meet the fiscal target this year, so new measures would be needed,” Ceron told radio station Gaucha.

“But the targets will be met. If measures are needed, they will be taken. Our commitment to meeting fiscal targets is guaranteed. They will be achieved, just like we achieved them in 2024.”

($1 = 6.0028 reais)