Reuters: US Dollar Report: UPDATE 2-Brazil primary surplus to improve in coming months -c.bank

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UPDATE 2-Brazil primary surplus to improve in coming months -c.bank Jul 31st 2012, 16:00 Tue Jul 31, 2012 12:00pm EDT * Brazil's primary surplus rose to 2.794 bln in June * Falling tax revenue puts primary target in jeopardy * Public debt-to-GDP ratio up to 35.1 pct BRASILIA, July 31 (Reuters) - Brazil's primary budget surplus is expected to grow in coming months as an increase in economic activity helps contribute to higher government revenues, the central bank said on Tuesday. The primary surplus rose less than expected in June from May, central bank data showed on Tuesday as a decline in tax revenue continued to weigh on government finances. "(The result is due to) a slowdown in income via economic activity, an increase in investments and a pullback in dividends (from state-controlled companies)," said Tulio Maciel, head of the bank's economic department at a press conference in Brasilia. "But along with the outlook for an economic recovery in the second half of the year, there will be a rebound in income." The central bank expects Brazil to grow by 2.5 percent in 2012. While a far cry from 2010's red-hot 7.5 percent growth rate, such performance would imply a rebound in coming months. Economists in a Reuters poll were less optimistic. They predicted that the largest economy in Latin America will grow less than 2 percent this year, fueling speculation that the government's fiscal goal is at risk. Brazil posted a consolidated primary budget surplus of 2.794 billion reais in June, the central bank said on Tuesday. The primary budget surplus is a gauge closely watched by investors because it measures a country's ability to service its debt. It represents the excess of revenue over expenditures before interest payments are taken into account. The primary surplus was expected to reach 6 billion reais, according to the median estimate of 10 analysts polled by Reuters. Estimates ranged from a low of 2.5 billion reais to a high of 10.7 billion reais. The public debt-to-GDP ratio rose to 35.1 percent in June from 35 percent in May and 35.7 percent in April. Brazil's central bank said it expects that ratio to decline to 34.7 percent in July, which would be the lowest reading since the historical series began in 2001. In the 12 months through June, the primary surplus - which excludes debt servicing costs - was equivalent to 2.71 percent of gross domestic product, down from 2.97 percent in May. President Dilma Rousseff has vowed to achieve the annual primary surplus target of 140 billion reais ($68.2 billion), or about 3.1 percent of gross domestic product, in order to help the central bank maintain interest rates at record lows and stimulate economic growth. That could be a challenge as Brazil's federal tax revenues dropped more than expected in June after a stubborn economic slowdown hurt corporate profits and prompted the government to grant tax breaks to some industries. Rousseff's effort to control government spending has allowed the central bank to cut 450 basis points off its Selic rate since August to a current record-low 8 percent. While a possible budget overrun would raise questions about the government's fiscal strategy, it may not necessarily hurt Brazil's debt metrics as interest rates fall to all-time lows, Moody's analyst Mauro Leos said in an interview last week. Lower rates, by reducing the cost of debt, can help the debt-to-GDP ratio fall even if the primary surplus slips. Overall budget balance, which includes interest payments, posted a deficit of 13.325 billion reais ($6.5 billion) in June, down from a deficit of 16.064 billion reais in May. Link this Share this Digg this Email Reprints

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