July 18, 2019 / 7:15 PM / a year ago

Brazil hoping to avoid budget freeze next week, but options limited

BRASILIA, July 18 (Reuters) - Brazil’s government is hoping to avoid announcing a fresh round of budget freezes next week, the President’s chief of staff said on Thursday, adding that economic stimulus measures are also expected to be announced next week.

The Economy Ministry publishes its latest bi-monthly fiscal report on July 22, and with weak economic growth squeezing federal revenues, may have to announce further spending freezes or cuts in order to make sure it keeps its fiscal rules.

But President Jair Bolsonaro’s chief of staff Onyx Lorenzoni told reporters in Brasilia on Thursday that the details are still being thrashed out, and that officials are working on the assumption that this can be avoided.

The Bolsonaro administration’s first bi-monthly expenditure and spending review in March called for a spending freeze worth almost 30 billion reais ($8 billion), while in May the government dipped into a 5 billion reais reserve fund to avoid further austerity.

Waldery Rodrigues, special secretary to the Economy Ministry, said last week that the 1.5 billion reais left in that fund probably would not be enough to prevent another halt on spending, but officials would do their best to “come up with measures” to avoid it.

The government is in a tight spot. Revenues are being squeezed because growth is so weak - the government last week halved its 2019 growth forecast to 0.8% - but there is barely any fat left in the budget to trim.

“Discretionary spending could also be cut further, although at under 2% of GDP, it’s difficult to see how much further this can be reduced,” said Edward Glossop, chief Latin American economist at Capital Economics.

The government is using all the tools at its disposal to raise cash, including a widespread privatization program, concessions, and clawing money back from the BNDES development bank.

Lorenzoni said that the government will next week announce details on the release of funds from the ‘FGTS’ workers’ guarantee funds and a workers’ social contribution fund known as PIS/Pasep, probably on Wednesday or Thursday.

Economy Minister Paulo Guedes said this week that 42 billion reais would be freed up from the ‘FGTS’ funds and 21 billion reais from the PIS/Pasep funds, newspaper Valor Economico reported. (Reporting by Marcela Ayres and Jamie McGeever Editing by Chizu Nomiyama)

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