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Brazil’s real fell Thursday to a record low 6.0 to the US dollar, a day after the government announced a near-$12 billion cut in public spending for 2025 and 2026.
The drop suggested continued market jitters over the fiscal discipline of Latin America’s largest economy that Wednesday’s spending adjustment had sought to calm.
According to the IPEA state agency, the real had never fallen to this level since entering into circulation in 1994.
Finance Minister Fernando Haddad on Wednesday announced spending cuts to “consolidate the government’s commitment to fiscal sustainability.”
The savings would affect minimum wage levels, benefits for civil servants and military pensions.
Haddad also announced a tax reduction for middle-income Brazilians as a cushioning measure, to be funded from a tax rise on the rich.
The goal of the adjustments was to ensure compliance with Brazil’s so-called “fiscal framework,” which seeks to cap government spending growth until 2026, when leftist President Luiz Inacio Lula da Silva’s term expires.
Investor doubts about Brazil’s ability to meet its fiscal commitments have weighed on the economy this year, even as the labor market, consumption and industrial production performed well.
And weeks-long suspense over the expected spending adjustment had placed pressure on the real.
According to the International Monetary Fund, Brazil’s economy should grow 3.0 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.
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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Publish date : 2024-11-28 09:20:00
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