BRASILIA (Reuters) – Brazil’s Economy Minister Paulo Guedes said on Tuesday that a budget agreement reached with Congress meets the government’s twin commitments to health and fiscal responsibility, and that crisis-fighting expenditure would not be subject to spending cap rules.
Congress late on Monday approved revised proposals following an impasse over certain spending measures, paving the way for the 2021 federal budget to be signed into law by President Jair Bolsonaro by the April 22 deadline.
With 95% of the budget taken up by mandatory spending and the public finances buckling under record debt and deficits, the government is struggling to fund anti-pandemic spending without breaking the spending cap, its key fiscal rule.
“This double commitment means that recurring spending remains under the ceiling,” Guedes said in an online address following the release of record March tax revenue figures.
“On the other hand… expenditures of a non-recurring nature… these expenditures, and only these expenditures, will be outside the ceiling, as happened last year,” he said, referring to it as an ‘extra-cap’.
The bill dictates that extraordinary credits to cover job protection schemes and programs to support micro and small businesses, as well as health-related spending to tackle the COVID-19 pandemic will not be counted as primary spending nor subject to the spending cap rules.
The ceiling limits growth in public spending to the previous year’s rate of inflation. It is widely seen as the government’s most important fiscal rule, a sign of its longer term commitment to reducing the public debt and deficit.
The precarious state of the public finances has been blamed for the weak exchange rate, high risk premium in Brazil’s financial assets, and steep yield curve.
Economists at Citi said on Tuesday that the government is on track to breach the spending cap rule by 2% of gross domestic product this year as it significantly eases fiscal policy to tackle the pandemic.
(Reporting by Gabriel Ponte and Isabel Versiani; Writing by Jamie McGeever; Editing by Rosalba O’Brien)
