(Recasts with new comments at press conference)
BRASILIA, Nov 21 (Reuters) – Brazil’s Finance Ministry is endorsing a legal change that would explicitly outline that any required budget cuts to meet its official fiscal target for 2024 should preserve minimum spending, said a top official on Tuesday.
Speaking at a press conference, Guilherme Mello, the secretary of economic policy, emphasized that the country’s new fiscal rules have established that public expenses should grow no less than 0.6% and no more than 2.5% per year above inflation, which he labeled as the “heart” and “one of the major merits” of the proposal.
Therefore, any budget cuts should respect the minimum increase in spending, since it would provide a “countercyclical” flexibility for the government to stimulate the economy when required, particularly in the context of an economic slowdown, he said.
The government’s leader in Congress, Senator Randolfe Rodrigues, has proposed an amendment to the 2024 budgetary guidelines bill asking that any spending cuts to comply with the target of eliminating the primary deficit by next year should preserve a real growth of at least 0.6% in expenses.
Finance Minister Fernando Haddad has publicly advocated that, under this interpretation, next year’s budgetary constraints would be limited to 23 billion reais ($4.7 billion).
Without it, private economists had estimated the need for 53 billion reais in budget cuts for the government to erase its deficit in 2024.
The government’s recent decision to keep its ambitious fiscal target was based on Haddad’s argument that the potential spending cuts would not be so drastic. Leftist President Luiz Inacio Lula da Silva had previously said his government did not need to achieve the zero deficit goal given the importance of funding for priority projects and construction investments.
When asked whether this change could undermine the credibility of the new fiscal framework amid criticisms from economists, Mello said, “I think this strengthens the rule.”
($1 = 4.9059 reais) (Reporting by Marcela Ayres Editing by Chris Reese and Aurora Ellis)
