Brazil plans to reduce lending by its development bank by about 20 percent next year to shore up finances after a wider-than-expected September deficit fueled speculation the nation’s credit rating may be cut.
Finance Minister Guido Mantega said in an interview yesterday that state lender BNDES will provide about 150 billion reais ($66.6 billion) of loans in 2014, compared with an estimated 190 billion reais this year.
The government will also freeze BNDES lending to states and municipalities, unwind tax breaks on consumer goods and keep current expenditures under control, the minister said.
“With respect to state banks, we will reduce stimulus,” Mantega said at his Sao Paulo office. Lending “will be more focused and we will reduce subsidies.”
A report published Oct. 31 showed Brazil’s budget deficit in September widened more than analysts expected to the highest in almost four years because of stimulus measures adopted mostly in 2012 to spur economic growth.
As consumer demand recovers and investment rises, tax revenue will grow and help improve fiscal performance going forward, according to Mantega. By April or May, when credit rating agencies visit Brazil, fiscal accounts will have improved, Mantega said.
If the downgrade “depends on the performance of public accounts and growth, that will only get better,” Mantega said. “We are looking at all spending for reductions.”
Growth Outlook
Standard & Poor’s in June placed Brazil’s rating on negative outlook, and Moody’s last month lowered its outlook to stable from positive. Both S&P and Moody’s rate Brazil at the second-lowest investment grade level, BBB and Baa2, respectively.
Brazil’s budget deficit widened to 3.3 percent of gross domestic product in the 12 months through September, the biggest since November 2009.
Gross domestic product is forecast to expand 2.5 percent this year, down from an estimate of 3.26 percent at the beginning of 2013, according to the latest central bank survey of economists.
Moody’s cited Brazil’s 59 percent government debt-to-gross domestic product ratio, versus a 45 percent median for other nations whose sovereign bonds have the same rating. Both companies highlighted the increase in public lending.
Rating Horizon
Next year the government will generate a primary budget surplus, which excludes interest payments, of between 2.2 percent of gross domestic product and 3.1 percent of GDP, Mantega said. The surplus in the 12 months through September fell to 1.6 percent from 2.3 percent a year earlier.
The widening budget deficit helped the real fall for the fourth straight session to record its biggest weekly drop since August. The real closed 0.6 percent lower yesterday at 2.2538 per U.S. dollar.
The currency depreciated 3 percent this week, the third-largest drop among 16 major currencies tracked by Bloomberg. Swap rates on the contract due in January 2015 climbed 10 basis points, or 0.10 percentage point, to 10.67 percent and increased 20 basis points for the week.
While any deterioration in fiscal policy or inflation may lead to a ratings downgrade, such a move is unlikely in the next 18 months, Goldman Sachs’ chairman in Brazil, Paulo Leme, said at an event in Sao Paulo yesterday.
Unlikely Downgrade
The central bank this year raised the benchmark interest rate to 9.5 percent, and Mantega said the government would “act strongly” to contain price pressures.
Consumer prices in the 12 months through mid-October rose 5.75 percent, according to the national statistics agency. The central bank targets annual inflation at 4.5 percent plus or minus two percentage points.
Mantega said the outlook for inflation in 2014 is benign in the absence of a decline in the currency. The government is still developing a new fuel pricing model for the state oil company, Petroleo Brasileiro SA (PETR4), said the minister, who also serves as the company’s chairman.
The new model, designed to reduce fuel subsidies, will have to exclude currency spikes so inflation isn’t unnecessarily affected, Mantega said. A proposal may not be ready to be voted on the next Petrobras board meeting Nov. 22, he said.
bloomberg.com
Finance Minister Guido Mantega said in an interview yesterday that state lender BNDES will provide about 150 billion reais ($66.6 billion) of loans in 2014, compared with an estimated 190 billion reais this year.
The government will also freeze BNDES lending to states and municipalities, unwind tax breaks on consumer goods and keep current expenditures under control, the minister said.
“With respect to state banks, we will reduce stimulus,” Mantega said at his Sao Paulo office. Lending “will be more focused and we will reduce subsidies.”
A report published Oct. 31 showed Brazil’s budget deficit in September widened more than analysts expected to the highest in almost four years because of stimulus measures adopted mostly in 2012 to spur economic growth.
As consumer demand recovers and investment rises, tax revenue will grow and help improve fiscal performance going forward, according to Mantega. By April or May, when credit rating agencies visit Brazil, fiscal accounts will have improved, Mantega said.
If the downgrade “depends on the performance of public accounts and growth, that will only get better,” Mantega said. “We are looking at all spending for reductions.”
Growth Outlook
Standard & Poor’s in June placed Brazil’s rating on negative outlook, and Moody’s last month lowered its outlook to stable from positive. Both S&P and Moody’s rate Brazil at the second-lowest investment grade level, BBB and Baa2, respectively.
Brazil’s budget deficit widened to 3.3 percent of gross domestic product in the 12 months through September, the biggest since November 2009.
Gross domestic product is forecast to expand 2.5 percent this year, down from an estimate of 3.26 percent at the beginning of 2013, according to the latest central bank survey of economists.
Moody’s cited Brazil’s 59 percent government debt-to-gross domestic product ratio, versus a 45 percent median for other nations whose sovereign bonds have the same rating. Both companies highlighted the increase in public lending.
Rating Horizon
Next year the government will generate a primary budget surplus, which excludes interest payments, of between 2.2 percent of gross domestic product and 3.1 percent of GDP, Mantega said. The surplus in the 12 months through September fell to 1.6 percent from 2.3 percent a year earlier.
The widening budget deficit helped the real fall for the fourth straight session to record its biggest weekly drop since August. The real closed 0.6 percent lower yesterday at 2.2538 per U.S. dollar.
The currency depreciated 3 percent this week, the third-largest drop among 16 major currencies tracked by Bloomberg. Swap rates on the contract due in January 2015 climbed 10 basis points, or 0.10 percentage point, to 10.67 percent and increased 20 basis points for the week.
While any deterioration in fiscal policy or inflation may lead to a ratings downgrade, such a move is unlikely in the next 18 months, Goldman Sachs’ chairman in Brazil, Paulo Leme, said at an event in Sao Paulo yesterday.
Unlikely Downgrade
The central bank this year raised the benchmark interest rate to 9.5 percent, and Mantega said the government would “act strongly” to contain price pressures.
Consumer prices in the 12 months through mid-October rose 5.75 percent, according to the national statistics agency. The central bank targets annual inflation at 4.5 percent plus or minus two percentage points.
Mantega said the outlook for inflation in 2014 is benign in the absence of a decline in the currency. The government is still developing a new fuel pricing model for the state oil company, Petroleo Brasileiro SA (PETR4), said the minister, who also serves as the company’s chairman.
The new model, designed to reduce fuel subsidies, will have to exclude currency spikes so inflation isn’t unnecessarily affected, Mantega said. A proposal may not be ready to be voted on the next Petrobras board meeting Nov. 22, he said.
bloomberg.com
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