Brazil reins in public spending by $12 bn for 2025/26

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SAO PAULO, Nov 28, 2024 (BSS/AFP) - Brazil on Wednesday announced a downward adjustment of nearly $12 billion in public spending for 2025 and 2026, a measure aimed at calming market jitters about the fiscal discipline of Latin America's largest economy.

The measures "consolidate the government's commitment to fiscal sustainability" and were needed for a "stronger, fair and balanced Brazil in the future," Finance Minister Fernando Haddad said in a message to the nation.

The minister had this week refined the details of the revised spending plan -- parts of which will need congressional approval -- with leftist president Luiz Inacio Lula da Silva.

The goal is to ensure compliance with Brazil's so-called "fiscal framework," which seeks to cap government spending growth until 2026, when Lula's term expires.

Weeks-long suspense over the expected announcement had placed pressure on Brazil's currency, the real, which depreciated rapidly against the US dollar.

Investor doubts about Brazil's ability to meet its fiscal commitments have weighed on the country's economy this year, even as employment figures, consumption and industrial production performed well.

According to the International Monetary Fund, Brazil's economy should grow by three percent in 2024, above the 2.1 percent forecast for Latin America and the Caribbean.

Brazilian authorities have recognized the necessity to tackle the deficit in order to stabilize the long-term fiscal situation and public debt of over 78 percent of GDP.

Lula, 79, had set a primary deficit target of zero for 2024, with a tolerance margin of 0.25 percentage points of GDP.

Haddad said last week he was confident of meeting the target, but it would require a freeze on $860 million in public spending for the rest of the year.

The government has announced it will favor a tax reduction for middle-income Brazilians in a bid to alleviate the impact of its spending cuts.

Inflation accelerated in October to an annualized 4.76 percent -- well above the central bank target of 3.0 percent, adding to pressure on Lula's government to balance the budget.

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