July 26, 2019 / 6:33 PM / 5 months ago

UPDATE 1-Brazil's public finances improve in June as spending controls tighten

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By Marcela Ayres and Jamie McGeever

BRASILIA, July 26 (Reuters) - The Brazilian government’s fiscal position improved in June, Treasury figures showed on Friday, with a smaller-than-predicted primary budget deficit for the month helping to narrow the shortfall accumulated in the first half of the year.

The central government posted a primary deficit before interest payments are taken into account of 11.48 billion reais ($3.05 billion) in June, less than the 14.85 billion reais deficit median forecast in a Reuters poll of economists.

That was almost a third less in real terms than the 16.38 billion reais deficit in the same month last year. For the first six months of this year, Brazil’s primary budget deficit totaled 28.92 billion reais, down 12.3% in real terms from a year ago.

The improvement was mainly down to deep cuts of 6.7 billion reais in discretionary spending compared with June last year, Treasury said.

This was a result of lower spending this year, as outlined in the government’s austerity plans, and base effects from “atypical” spending in June last year that included 3.6 billion reais on parliamentary amendments and 1.7 billion reais on capital increase of state-owned enterprises.

Despite the improvement, Treasury again noted government receipts are worryingly low, mainly due to weak economic growth, and warned that spending, especially on social security, must be reined in.

“Even with (pension) reform, social security spending will continue to grow in real terms,” Treasury said.

Brazil’s government scored a major victory earlier this month when the lower house of Congress overwhelmingly backed a pension reform bill, which, if passed into law, will save the public purse almost 1 trillion reais in the next decade.

The social security deficit in June totaled 15 billion reais, little changed in real terms from June last year. In the January-June period, this deficit totaled 95.7 billion reais, also little changed form a year ago.

These and other obligations mean discretionary spending continues to be squeezed. Treasury predicts that discretionary spending will fall to a historic low of 95 billion by the end of this year.

In the 12 months to June the government’s primary deficit totaled 119.7 billion reais, or 1.68% of gross domestic product, Treasury said. The government’s target for the calendar year is a 139 billion reais deficit, or 1.94% of GDP.

$1 = 3.77 reais Reporting by Marcela Ayres and Jamie McGeever Editing by Jonathan Oatis and Bill Trott

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