Brazil's Finance Minister on Fiscal Framework

By Marcela Ayres

WASHINGTON (Reuters) – Brazil's Finance Minister Fernando Haddad announced on Wednesday plans to discuss a "remedy" for the country's fiscal framework with President Luiz Inacio Lula da Silva after his return from Washington.

While attending IMF/World Bank and G20 meetings in Washington, Haddad expressed more concern over international market volatility stemming from U.S. elections than Brazil's domestic situation, emphasizing positive trends in the Brazilian economy.

When questioned about high future interest rates, Haddad recalled last year's stress period affecting the yield curve, which later improved. He noted, "These things tend to go like this… there’s a cloud of uncertainty, you explain yourself, make decisions, move forward with the agenda, and that cloud dissipates, bringing things back to normal."

Haddad highlighted the ministry's efforts to strengthen the fiscal framework established last year by Lula’s administration, which ties spending growth caps to primary budget outcomes. Concerns have arisen regarding the sustainability of this framework due to the rapid growth of mandatory expenditures, including pensions and social programs, posing a challenge for other budget areas.

Haddad responded to perceptions that the government is neglecting public finances, stating, "There is an overreaction in the assessment." He pointed out that initial projections for the primary deficit were overly pessimistic compared to the anticipated outcome, asserting that the government will maintain a deficit within the official target range this year.

The official goal is to eliminate the primary shortfall, allowing a margin of 0.25% of GDP, which translates to a possible primary deficit of up to 29 billion reais.