April 7, 2017 / 7:00 PM / in a year

UPDATE 1-Brazil nearly doubles 2018 deficit target as economy sputters

(Adds analyst comments, context)

By Marcela Ayres

BRASILIA, April 7 (Reuters) - The Brazilian government on Friday widened its 2018 fiscal deficit target to 129 billion reais (about $41 billion) from 79 billion reais, highlighting the challenges President Michel Temer faces in rebalancing the country’s depleted public accounts.

Two years of deep recession have dragged down tax revenues and eroded government finances to the point that Brazil lost its coveted investment-grade sovereign debt rating.

A member of the economic team told Reuters this week the deficit goal could be widened given the slow pace of recovery.

Temer has promised to gradually reduce that deficit by rolling back tax breaks, trimming public spending and overhauling the country’s costly pension system.

For 2019 and 2020 the government forecasts primary deficits of 65 billion reais and 10 billion reais respectively.

Market reaction was muted, with the real slightly weaker and the benchmark Bovespa stock index remaining flat.

“Is a more realistic target ... it shows a very gradual improvement of the (fiscal) trajectory,” said Alessandra Ribeiro, partner with Sao Paulo-based consultancy Tendencias.

Ribeiro said the wider target puts more pressure on lawmakers to approve and keep a proposed pension reform unaltered.

“If the reform is completely disfigured then the risk about the sustainability of the fiscal accounts will come back to the fore,” Ribeiro said.

Temer is facing resistance to approve a reform to limit generous pension benefits in order to close the yawning fiscal deficit. For next year the government sees a pension deficit of 202 billion reais.

The market is forecasting a deficit of 118.3 billion reais next year, according to estimates collected by the finance ministry.

Temer canceled payroll tax breaks for 50 sectors and froze 42 billion reais in budget spending as part of efforts to meet this year’s deficit goal of 139 billion reais. ($1 = 3.1425 Brazilian reais) (Additional reporting by Silvio Cascione; Writing by Alonso Soto; Editing by James Dalgleish)

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