Brazil's Budget Deficit Narrows in October as Govt Spending Declines
Brazil's Budget Narrows as Government Cuts Spending
Brasilia, Brazil, Jan. 14 (Bloomberg) -- Brazil's budget
shortfall narrowed to 8.6 billion reais ($6.6 billion) in
October, beating expectations, as spending cuts by the federal
government offset rising interest payments on the government's
debt.
A poll of six economists surveyed by Bloomberg News had
expected the shortfall to widen to 9.7 billion reais from 9.2
billion reais in September.
Spending by the federal government fell to 810 million reais
from 2.1 billion reais the previous month. This was offset by
interest payments on the government's 368 billion reais debt,
which rose to 7.8 billion reais from 7.1 billion reais in
September.
Since 64 percent of the country's domestic debt is indexed
to overnight lending rates, interest payments rose immediately as
market rates doubled to 40 percent after the central bank raised
rates to stop an outflow of U.S. dollars that had reached $1
billion daily in September. Rates remained at around 41 percent
in October.
High interest rates and bloated pension and payroll bills
have caused Brazil's budget deficit to balloon as it had to raise
rates to sell debt. This forced Brazil to weaken its currency
yesterday. The government is betting that it will now be able to
reduce interest rates faster and ease interest payments, keeping
its deficit from rising.
Still, rates are still high as investors are unsure the
government can cut its spending, speculating the devaluation will
continue. Yesterday, the local currency, the real, weakened 8.8
percent after the government introduced a new foreign exchange
mechanism which allows the real to devalue faster at about 15
percent a year. The real had been devaluing at 7.4 percent a year
since 1995.
Between January and October, Brazil's budget deficit rose to
56.4 billion reais from 47 billion reais in the first nine months
of the year.
The bank didn't release 12-month estimates, though
economists have estimated it's about $64 billion.
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