Brazil’s Finance Minister Fernando Haddad announced a significant move on Thursday, freezing $2.7 billion (15 billion reais) from the 2024 budget. This decision comes amidst growing market concerns regarding the country’s ability to manage its finances and meet its fiscal targets. The Brazilian real has experienced a significant decline against the US dollar, and interest rates have climbed, indicating investor unease about the country’s economic trajectory.
The government’s primary goal is to eliminate the primary deficit this year, with a tolerance band of 0.25% of GDP. However, achieving this goal has proven challenging, prompting the need for immediate action. Out of the 15 billion reais frozen, 11.2 billion will be blocked to adhere to a strict fiscal framework rule that limits annual spending growth. This measure aims to demonstrate the government’s commitment to fiscal discipline and instill confidence in investors.
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The remaining 3.8 billion reais are frozen due to a disagreement with the Senate regarding payroll tax benefits. These benefits have generated significant revenue losses, and the government is seeking alternative solutions to offset these losses. The funds could potentially be unfrozen if a consensus is reached with the Senate on alternative measures.
The government hopes that the budget freeze will help to stabilize the Brazilian real and restore investor confidence. The upcoming bimonthly revenue and expenditure report is expected to show a primary deficit near the upper limit of the 0.25% tolerance band. However, the government maintains its commitment to achieving its fiscal goals and ensuring the country’s economic stability.