Brazil government lauds fiscal gains as markets voice skepticism
Adds further comments, context
By Marcela Ayres
BRASILIA, Sept 23 (Reuters) -Brazil's Finance Ministry said on Monday that the government's efforts should be recognized as the fiscal situation improved and exceeded expectations, despite market skepticism over the government's commitment to fiscal balance.
Following the release of a bimonthly revenue and expenditure report, which economists viewed as overly optimistic, the ministry's executive secretary Dario Durigan backed the government's approach, arguing that the report was thorough.
Expenditures are expected to close the year at around 19% of gross domestic product (GDP), below levels seen in previous administrations, he said.
In an unexpected move for many, the report reversed the spending freeze implemented earlier this year due to higher projected revenues, which marginally helped reduce the expected primary deficit.
Markets reacted negatively to the move.
"The government may even meet the fiscal target this year, but distrust regarding its commitment to the sustainability of public finances only increases," asset management firmAzimut said in a note to clients.
Brazil's real BRBY weakened more than 1% against the U.S. dollar early in the session before paring some losses.
"Our flight plan is to maintain and meet the fiscal target," said Durigan, referring to the goal of eliminating the primary deficit this year, which has a tolerance band of 0.25% of GDP in either direction.
That means the government could still record a 29 billion real ($5.23 billion) shortfall.
The Planning Ministry's executive secretary, Gustavo Guimaraes, noted that by law the government cannot freeze spending if it is meeting the fiscal target, as reflected in the report.
Durigan emphasized that the government has been conservative in its calculations and has yet to account for forgotten funds in banks, which could boost revenues by more than 8 billion reais.
Congress passed a bill allowing the Treasury to appropriate these funds to help meet this year's fiscal target, though it left room for the central bank to exclude them from its methodology for calculating public accounts.
By law, the central bank's methodology is used to verify compliance with the target.
($1 = 5.5429 reais)
Reporting by Marcela Ayres; editing by Gabriel Araujo and Alistair Bell
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