May 14, 2019 / 6:11 PM / 2 months ago

Brazil to cut 2019 GDP forecast below 2% as fiscal picture worsens

FILE PHOTO: Brazil's Economy Minister Paulo Guedes attends a session of the commission of the pension reform bill at the National Congress in Brasilia, Brazil May 8, 2019. REUTERS/Adriano Machado/File Photo

BRASILIA (Reuters) - Brazil’s government will cut its 2019 economic growth forecast to below 2% and seek supplementary funding from state-run BNDES development bank to meet current expenditure and avoid breaking its fiscal rules, Economy Ministry officials said on Tuesday.

Economy Minister Paulo Guedes and special secretary Waldery Rodrigues’ testimony to a budget commission made up of deputies and senators underscored the two most serious challenges facing the government: an anemic economy and stretched public finances.

Rodrigues said the revised forecasts will be unveiled on May 22, when the government will publish its latest bimonthly report on revenue and spending, a recent addition to its policy framework designed to encourage stricter fiscal discipline.

The new growth forecast will be below 2%, down from 2.2% currently, and closer to the wider market consensus which is now below 1.5%, according to the central bank’s latest weekly survey of around 100 financial institutions.

Economy Minister Guedes said growth would return to 2% or 3% levels once Congress passes the government’s fiscal reforms, the biggest of which is an ambitious overhaul of the pension system aimed at saving the public purse 1.237 trillion reais over the next 10 years.

Brazil’s economy expanded by 1.1% in 2018 and 2017, and a growing number of economists reckon it will not fare much better this year. Earlier on Tuesday, the central bank said the economy may have shrunk in the first quarter.

In the meantime, the public finances are so bad the government will seek supplementary funding of around 248 billion reais from the BNDES to avoid breaking its golden rule which prevents the issuance of debt to pay for current expenditure, Guedes said.

Around 200 billion reais of that will go toward social security, he said, urging Congress to approve the extra disbursement.

Writing by Jamie McGeever; Reporting by Marcela Ayres; Editing by Bernadette Baum and Cynthia Osterman

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