SAO PAULO, Nov 29 (Reuters) - Brazil’s efforts to bring down its debt will translate into renewed investor confidence and additional room to continue poverty-reduction policies for the years to come, incoming Finance Minister Joaquim Levy said on Saturday.
Levy said in a video posted on the presidential palace’s Facebook page that a slow economic recovery will allow the government to post a primary budget surplus equivalent to 1.2 percent of gross domestic product next year. The surplus - the excess of revenue over expenses before debt payments, will increase to at least 2 percent in the following years, he noted.
“Having our debt stabilizing, falling is key to creating the necessary confidence for kick-starting growth and economic activity, while generating the resources that the government needs to continue with its policies of social inclusion,” Levy said. It was unclear when the interview was recorded.
Levy’s ability to streamline budget expenses, which have risen way above the pace of annual inflation in recent years, is key for Brazil to regain market confidence and overcome the risk of credit rating agencies stripping Brazil of its coveted investment grade. Standard & Poor’s downgraded Brazil to its lowest invest-grade rating in March.
Most investors agree that Levy and his colleagues in President Dilma Rousseff’s economic cabinet - namely incoming Planning Minister Nelson Barbosa and current central bank President Alexandre Tombini - will engage on a multi-year plan to curb budget spending, although they will fall short of bringing about tax, pension and labor market reforms necessary to put Brazil on track for sustainable, long-term growth.
Levy’s predecessor, outgoing minister Guido Mantega, tried to reverse a slowdown in activity in Brazil by awarding large tax cuts to businesses and pumping hundreds of billions of reais into state-run banks to spur credit. Mantega’s costly policies eroded Brazil’s fiscal accounts and put the country on the brink of posting its first primary budget shortfall in two decades.
Levy faces severe rigidity in the budget, where nine in every 10 reais of spending are tied to constitutionally mandated expenditures. During her campaign, Rousseff vowed not to scale back any of the social programs that brought her ruling Workers’ Party to power since 2003. (Reporting by Guillermo Parra-Bernal; Editing by Dan Grebler)