BRASILIA, Oct 30 (Reuters) - Brazil could lower a hefty fiscal target for 2015 to a more credible goal, three government officials involved in policy talks told Reuters on Thursday, in what could be another attempt by President Dilma Rousseff to regain the trust of investors.
A lower savings target would improve transparency and reinforce signals that Rousseff could adopt more pragmatic economic policies after her narrow re-election victory on Sunday.
Brazil’s stock and currency markets rallied on Thursday after the central bank hiked interest rates a day earlier, raising investors’ hopes that Rousseff is willing to make some painful measures to rebuild the pillars of the economy.
“A lower target could help recover credibility by stating clearly what we can actually achieve,” said an official who requested anonymity because he was not allowed to speak publicly. “It will be very difficult for the government to achieve a target of 2 percent (of GDP) even with steep budget cuts and an increase in taxes.”
Two other officials also acknowledged that the government may have to cut its 2015 primary surplus target of between 114.7 billion reais ($47.7 billion) and 143.3 billion reais ($59.6 billion) or the equivalent 2 and 2.5 percent of GDP due to expectations for a slowdown in tax revenues. None of the three officials said by how much the goal could be reduced.
One of the officials said that the government will soon announce hefty budget cuts for 2015 as well as measures to lower public expenditures in coming years. The official declined to detail the size of the cuts or nature of the measures.
A finance ministry spokesman declined to comment on the possibility of a lower fiscal target in 2015.
A sharp deterioration of Brazil’s finances under Rousseff has put the once-booming economy in the sights of rating agencies and eroded investor confidence in the country.
After narrowly defeating market favorite Aecio Neves on Sunday, Rousseff has pledged policy changes to reverse economic weakness that cost her support among Brazil’s middle class and hurt investors’ confidence.
The primary budget surplus represents the public sector’s excess revenue over expenditures before debt payments. In the first eight months of 2014, the government has saved only 10 percent of its primary surplus target for the whole year.
1 US dollar = 2.4037 Brazilian real Writing by Alonso Soto; Editing by Lisa Shumaker