(Adds GDP and CPI projections and background)
BRASILIA, Feb 20 (Reuters) - Brazil set a smaller fiscal savings goal than in previous years on Thursday, hoping that a more realistic target for this year will help it recover credibility in the eyes of wary investors.
Many economists, however, continue to doubt that President Dilma Rousseff’s government will be able resist pressure to spend more in an election year and meet the new primary budget surplus savings goal of 1.9 percent of gross domestic product.
The primary surplus represents the excess of revenues over expenditures excluding interest payments. As such, it is a key gauge of a country’s capacity to service its debt.
Brazil failed to achieve its primary surplus goal last year even though it was revised down to 2.3 percent from 3.1 percent at the start of 2013.
In a much-anticipated announcement, the government said it will freeze 44 billion reais ($18.44 billion) in public spending to meet the 2014 primary surplus target, up from 38 billion reais last year.
A realistic and transparent primary surplus goal is crucial for Rousseff’s bid to recover the confidence of investors as she struggles to attract more investment to revive an economy that has slowed to a crawl since she took office in 2011.
The government’s announcement included a GDP 2014 growth projection of 2.5 percent, above most market forecasts but down sharply from a previous estimate of 3.8 percent. It also forecast inflation of 5.3 percent for this year, down from 5.8 percent previously estimated.
Brazil’s finances have deteriorated steadily under Rousseff, who has increased public spending and foregone billions of dollars in revenues by granting a slew of tax breaks aimed at reactivating the economy.
Her government has fallen short of its fiscal target in two of the three years of her presidency and she plans to seek a second term in elections scheduled for October.
Shrinking primary surpluses have raised Brazil’s overall budget deficit, which includes debt payments, to a three-year high of 3.28 percent of GDP. In 2012, the deficit was 2.48 percent of GDP.
Despite the fiscal deterioration, Rousseff’s policies have done little to kick-start the fragile economy of Latin America’s largest nation. Instead, they have stoked already-high inflation and raised worries of debt rating downgrade this year.
$1 = 2.3866 reais Reporting by Luciana Otoni Editing by W Simon