Brazil President Luiz Inacio Lula da Silva cast doubt on his government’s ability to hit its own zero-deficit target next year, saying he would not cut spending on priority projects to reach a goal he considers unnecessary.
The government will not “establish a fiscal target that requires us to start the year by cutting billions from projects that are priorities for this country,” Lula told reporters Friday in Brasilia.
The target “doesn’t need to be zero,” he added. “The country doesn’t need it.”
The comments mark a reversal of the government’s fiscal strategy. Until recently, Finance Minister Fernando Haddad was pledging to balance Brazil’s budget next year, a key aspect of his efforts to calm investor fears about the leftist Lula’s plans to boost public spending amid high government indebtedness.
Read More: Brazil Vows to Balance Budget in 2024 - Markets Are Skeptical
Haddad told Bloomberg News in an interview earlier this month that Brazil was on track to hit the goal if congress did its part to help raise the 168 billion reais ($34 billion) in revenues he needs to reach it.
What Bloomberg Economics Says
“Haddad’s mission of bringing the budget to balance in 2024 was already hard to deliver, but without Lula’s explicit and strong endorsement, it becomes multiple times harder.”
“That shows that Haddad is alone in the pledge for a balanced budget, suggests that he’ll not have support to put expenditures on hold at the onset of the year to improve his odds of meeting the target; and poses questions as to what may happen during the budget process for 2025 - when Haddad will likely be hard pressed by the new fiscal rule to adopt a stricter parameter for spending growth.”
— Adriana Dupita, Brazil economist
The Brazilian real erased gains as traders assessed Lula’s remarks, while a broader index of developing-nation currencies also trimmed its advance amid a souring global mood. Local swap rates climbed, with contracts maturing in January of 2027 surging 17 basis points as of 2:50 p.m. local time.
“I know it’s Haddad’s will, but if Brazil has a deficit of 0.5% or 0.25% of GDP” the difference is “nothing,” Lula said.
--With assistance from Vinícius Andrade.
(Updates with market reaction and additional context from fourth paragraph.)