Brazil Intent on Lowering Debt/GDP Ratio from 51% to 44% in 4 years

Brazil’s Minister of Finance, Guido Mantega, said Tuesday, April 18, that the Budget Guidelines Law (Lei de Diretrizes Orçamentárias, LDO) for next year foresees a continuation of the 4.25% primary surplus for the next four years.

The primary surplus is the fiscal adjustment made by the government to obtain funds to cover its debt interest payments by spending less than it collects in revenues. The minister gave a press conference to announce next year’s LDO.

According to the projections contained in the LDO, the fiscal adjustment will enable government debt to be reduced. This debt is currently equivalent to 50.60% of this year’s estimated Gross Domestic Product (GDP), the sum of wealth produced in the country. The federal government is counting on the fiscal adjustment to lower this ratio to 49.1% in 2007 and bring it down to 44.2% in 2009.

The forecasts for GDP growth ratchet up gradually from 4.50% this year to 4.75% in 2007, 5% in 2008, and 5.25% in 2009.

"We want to make this growth feasible by exercising fiscal responsibility," Mantega said during the press conference, in which he was joined by the Minister of Planning, Paulo Bernardo.

Regarding the LDO, the minister of Planning observed that the project upholds the determination to obtain a primary surplus equivalent to 4.25% of the GDP.

Responsibility for 2.45% will fall to the central government, while 0.7% will be up to government-run enterprises. The rest is expected to come from state and municipal treasury sources.

The LDO for 2007 projects continuing the policy of fiscal easing and reducing current outlays by 0.10% per year through 2009. The reductions are apparently small ones, according to Bernardo, but they amount to approximately US$ 1.080 billion (2.3 billion reais) at present and will permit the government to save US$ 4.7 billion (10 billion reais) over four years. This, he says, is enough to lower the debt/GDP ratio to 44% in four years.

Agência Brasil

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