29 de diciembre de 2015 / 13:26 / en 2 años

UPDATE 3-Brazil primary budget deficit swells, debt seen climbing

(Adds increase in minimum wage, impact on budget )

By Alonso Soto and Marcela Ayres

BRASILIA, Dec 29 (Reuters) - Brazil’s primary public sector budget deficit widened sharply in November, the central bank said on Tuesday, as falling tax revenues undermined government efforts to shore up public accounts amid a deepening recession.

At 19.567 billion reais ($5.07 billion), the November primary shortfall was the third worst on record. The deficit, which represents revenues minus expenditures before debt interest payments, is a closely watched gauge of creditworthiness.

The November shortfall surpassed October’s 11.5 billion reais and also topped the Reuters poll forecast of 14 billion reais.

President Dilma Rousseff has failed to plug a widening deficit, as her left-leaning government seeks to safeguard welfare payments and a restive Congress blocks passage of bills to raise revenues. Including debt payments, Brazil’s overall deficit was running at a hefty 9.3 percent of gross domestic product in the 12 months through November.

In December, Fitch became the second credit ratings agency to cut its rating on Brazilian debt from investment-grade to junk status, which meant that many foreign investments funds, under their bylaws, could no longer invest in the country.

On Tuesday, the central bank said it expects Brazil’s gross debt to climb to 70.7 percent of gross domestic product next year, above the 70 percent threshold that ratings agencies see as a debt-servicing risk factor.

The bank based its estimates on the assumption that the government will meet its 2016 primary surplus target of 30.5 billion reais, or 0.5 percent of GDP.

But it noted that economists in a central bank survey forecast the government would post a 1 percent primary deficit next year.

November’s weak tax revenues suggested the government would fall short of its 2016 goal, Itau Unibanco said in a research note. “We see a rising risk of a stronger decline in tax collection next year, with negative impacts on the primary result,” it said.

Rousseff on Tuesday also announced an 11.6 percent increase in the monthly minimum wage, to 880 reais next year, according to a legally binding formula based on the previous year’s inflation plus economic growth from two years prior. Pensions are pegged to the minimum wage, eventually adding pressure to public finances.

The impact on next year’s budget from the higher wage will total 4.77 billion reais, of which 3 billion reais will go to fund social security stipends, 612 million reais to permanent pensions under a social assistance program and 1.1 billion reais to a fund to pay for unemployment benefits.

The increase means the government will have to raise pension payments by an equal amount. Pension payments represent about a quarter of all budget spending.

In the 12 months through November, the primary budget deficit rose to 0.89 percent of GDP from 0.71 percent in the 12 months through October.

That shortfall is likely to rise sharply this month as the government moves to pay back 57 billion reais borrowed from state-run banks and a workers’ fund.

The immediate payment of those debts will eliminate liabilities for next year, but not save the government from recording a hefty deficit, Itau said in its note.

Itau reduced its 2016 primary deficit estimate to 1 percent of GDP from 1.3 percent after the latest data.

Brazil’s gross debt rose to 65.1 percent of GDP in November from 64.9 percent in October and 57.2 percent in December 2014.

$1 = 3.8678 Brazilian reais Reporting by Alonso Soto and Marcela Ayres; Editing by W Simon and Leslie Adler

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