(Recasts with surplus results, adds official comments and budget data)
By Alonso Soto
BRASILIA, Feb 26 (Reuters) - Brazil’s central government posted its lowest primary budget surplus for the month of January in seven years, Treasury data showed on Thursday, highlighting the challenges the government faces to meet its key fiscal target this year.
The central government, which covers federal ministries, the central bank and social security, had a primary surplus of 10.405 billion reais ($3.61 billion) in January. It posted a surplus of 1.039 billion reais in December.
The primary surplus is usually high in January due to seasonal factors, but this print was the lowest for the month since 2009 as tax revenues dropped.
High public spending and a slew of tax breaks have depleted the country’s savings in the last three years, forcing President Dilma Rousseff to introduce unpopular austerity measures in a bid to avoid losing the country’s investment grade rating.
Treasury chief Marcelo Saintive said he was confident the central government would be able to achieve its primary surplus target of 55 billion reais with a mix of tax increases and spending cuts. The country’s overall primary surplus target is 66 billion reais.
“We are facing a difficult situation so our expenditures will depend on our cash flow,” Saintive told reporters in Brasilia.
He said the government would issue a decree later on Thursday to limit non-obligatory expenditures during the first four months of the year to the levels of 2013. Saintive said the measure will serve as a guide for non-discretionary spending for all of 2015.
In 2013, the government had non-obligatory expenditure of about 227.1 billion reais. That expenditure, which included some investments and social programs, rose to about 263 billion reais last year, according to calculations of Congress’ fiscal and budget consultancy group.
Non-obligatory expenditures are those that the government can effectively cut from its budget and are equivalent to about 10 percent of all spending. The remaining expenditure is mandatory by law.
The central bank is scheduled to release on Friday the country’s consolidated fiscal results, which include states, municipalities and some state-owned companies. It is regarded as the benchmark for Brazil’s fiscal performance.
$1 = 2.8859 Brazilian reais Editing by Bernadette Baum