The substantial cuts to Brazil’s primary surplus targets announced this month underline the inherent difficulty of fixing budget problems against the backdrop of a weakening economy. As it happens, the recent revisions have been a long time coming. We said back in January that the government’s budget goals were too optimistic. Since then, the primary balance has moved further into deficit as the slump in activity dampened government revenues and pushed up welfare payments. All this has eroded Finance Minister Joaquim Levy’s progress in improving the health of the public finances. Stepping back, the revisions merely confirm that progress in repairing the public finances will be slow, the budget deficit will remain uncomfortably large for several years, and the public debt burden will continue to rise. In short, Brazil’s fiscal vulnerabilities are here to stay. If there is anything positive to take from the recent revisions it is that government now seems to be facing up to its fiscal realities.
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