Brazil’s fiscal framework aims for 2024 zero primary deficit, 2025 surplus -sources

By Marcela Ayres, Lisandra Paraguassu and Bernardo Caram

BRASILIA (Reuters) -Brazil’s new fiscal framework targets a zero primary deficit in 2024, followed by surpluses in subsequent years, as President Luiz Inacio Lula da Silva seeks a sustainable trajectory for the country’s public debt, government sources told Reuters on Wednesday.

The primary surplus will be equivalent to 0.5% of GDP in 2024, rising to 1% of GDP in 2025, one of the sources said. The new framework will combine a target for primary results with a spending rule and will have adjustment mechanisms in case of noncompliance.

“It is a target with bands, associated with a spending rule where expenditure cannot grow by more than 70% of revenue,” the source said, adding that there would be a cap on annual expenditure growth.

The sources spoke anonymously because the topic is being addressed in private conversations with members of Congress.

The framework is scheduled to be presented on Thursday at 10:30 a.m. local time (1330 GMT), the Finance Ministry said later on Wednesday in a statement.

The framework is needed to ease fiscal concerns after Lula secured congressional approval for a multi-billion-real package that bypasses the constitutional spending cap so his government can boost social spending and fulfill campaign promises.

This year’s primary deficit target, the first of the leftist Lula administration, is 228.1 billion reais ($44 billion), but the Finance Ministry recently estimated that the shortfall will be 107.6 billion reais, equal to 1.0% of GDP, helped by a jump in expected tax revenue.

Earlier on Wednesday, Institutional Relations Minister Alexandre Padilha said the government was finalizing the new rule, adding that Lula and Finance Minister Fernando Haddad would meet to do so. Haddad is expected to present it to leaders of the lower house of Congress later in the day.

Talking to reporters, Padilha said that the leaders of Brazil’s Congress have indicated that, once submitted, the fiscal rules should be approved quickly.

($1 = 5.1351 reais)

(Reporting by Lisandra Paraguassu, Marcela Ayres and Bernardo Caram in Brasilia; Editing by Steven Grattan, Matthew Lewis and Jamie Freed)