April 29, 2020 / 4:01 PM / in a month

UPDATE 1-Brazil government deficit narrows in March but crisis impact yet to be felt

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By Jamie McGeever and Marcela Ayres

BRASILIA, April 29 (Reuters) - Brazil’s central government budget deficit narrowed in March from a year earlier, figures released on Wednesday showed, but the coronavirus pandemic’s impact had yet to be felt and the shortfall is expected to widen significantly in the coming months.

Treasury Secretary Mansueto Almeida said the April deficit is likely to be larger than the entire deficit accrued over the course of last year due to the surge in coronavirus-fighting spending and slump in tax revenues.

That would imply a deficit in April before interest rate payments of more than 195 billion reais ($36 billion), the accumulated primary deficit last year that equated to 1.3% of gross domestic product.

The Treasury said on Wednesday that the total primary deficit for this year is likely to come in at around 600 billion reais, or 8% of GDP, while the nominal deficit including interest payments will be around 12% to 13% of GDP.

The 21.2 billion reais deficit in March was 2.8% narrower in real terms from the same month last year, while the January-March deficit of 2.9 billion reais was 70% smaller in real terms, the Treasury said.

It also said the government’s fiscal measures taken so far to combat the crisis include more than 300 billion reais worth of new spending and payments, but warned that the increase in borrowing and debt will require an even greater fiscal consolidation effort next year.

Vice President Hamilton Mourao said on Wednesday that the government is unlikely to balance its budget until 2023 or 2024 at the earliest, while Economy Minister Paulo Guedes added that the government must not “continue digging” an already deep hole in the public finances.

Almeida said an aid package of up to 130 billion reais for states and municipalities mentioned by Guedes includes measures already announced, and that the federal government is mulling the transfer of around 55 billion reais to local authorities to compensate the loss of tax revenue.

He also said he has had discussions with ratings agencies Moody’s and Fitch to explain the measures Brazil has taken and to assure them that temporary spending will not turn into a permanent budget increase.

$1 = 5.40 reais Reporting by Jamie McGeever; Editing by Will Dunham

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