WRAPUP 1-Brazil primary surplus goal recedes on spending

* July primary surplus down, budget deficit up

* July current account deficit at record $4.499 bln

* Gov’t could change accounting for primary surplus

By Luciana Lopez

SAO PAULO, Aug 26 (BestGrowthStock) – Brazil moved closer to
missing a key fiscal target for 2010 as data released on
Thursday showed that heavy election-year budget spending
continues to outstrip tax gains from the robust economy.

The government’s overall deficit rose in July from a year
earlier as the primary surplus — a key gauge of its ability to
pay its debt — fell, the central bank said.

“This confirms our outlook for the year, which is that the
government won’t meet its primary surplus goal,” said Felipe
Salto, an economist with Tendencias consultancy in Sao Paulo.

“They’re probably going to change the accounting and then
they can artificially announce that they met the target.”

Brazil’s government is targeting a primary surplus of 3.3
percent of gross domestic product this year, more than a full
percentage point above the 2.03 percent for the surplus in the
12 months through July.

Brazil’s debt remains a concern to many investors. While
Fitch Ratings upgraded its outlook in June, the agency noted
the gross government debt burden is above the median for the
country’s rating peers.

But this week Budget and Planning Minister Paulo Bernardo
said the government might exclude up to 15 billion reais of
spending for its flagship infrastructure program from its
primary surplus tally. For more see [ID:nN23206798].

“This signals that the fiscal austerity we saw under most
of President Lula’s administration is no longer a constant,”
Salto said.

With presidential elections in October, some economists say
the government is spending more lavishly to curry favor among
voters toward Dilma Rousseff, the ruling party candidate.

Rousseff, who has a double-digit lead in opinion polls,
denied reports this week she was weighing budget cuts. “Why on
earth would I make budget cuts?” she said. [ID:nN24248922]

GOVERNMENT SAYS DEBT/GDP RATIO TO FALL

Yet the government says it can impose fiscal discipline,
with the central bank projecting the ratio of debt to gross
domestic product falling to 39.6 percent by the end of the
year. In July, it stood at 41.7 percent of GDP, up from 41.4
percent the month before.

Other data this week have underscored Brazil’s fiscal
vulnerability.

Brazil’s current account deficit nearly tripled in July, as
Brazilians took their strong currency on vacations abroad and
brought in more and more imports.

That leaves Brazil more exposed to flows of foreign money,
especially funds tied to more speculative, short-term
investments.

Yet with Brazil’s economy projected to grow 7 percent or
more this year — among the world’s fastest rates — the
current account gap will likely persist.

Brazil’s unemployment rate fell to 6.9 percent in July, a
record low for the month and another sign that the country’s
domestic market continues to be strong.
(Reporting by Ana Nicolaci da Costa, Isabel Versiani and
Natuza Nery; Writing by Luciana Lopez; Editing by James
Dalgleish)

WRAPUP 1-Brazil primary surplus goal recedes on spending