Brazil exceeds primary budget surplus target and keeps net debt under control

Brazil’s primary budget surplus exceeded expectations in May, providing additional support for the central bank in its efforts to cool the fastest inflation since 2005. The bank also revealed that net debt for May was 39.8% of GDP.

Primary surplus, which includes federal and local governments as well as state companies, widened to 7.5 billion Real (4.8 billion US dollars) in May, from 487 million Real in May 2010, the central bank said in a statement.

The accumulated surplus in the first five months of the year was 64.8 billion Real equivalent to 55% of the government’s 2011 target of 117.9 billion Real.

Policy makers’ inflation outlook for 2012 assumes that President Dilma Rousseff’s government will hit this target, Carlos Hamilton, the central bank’s director for economic policy, said this week.

The government’s current fiscal policy is aimed at “contraction”, Hamilton told reporters in Brasilia.

Consumer prices rose 6.55% in the year through mid- June. Inflation thus exceeding the upper limit of the central bank’s target range since April. The bank targets inflation of 4.5%, plus or minus two percentage points.

However the fiscal budget deficit widened to 14.7 billion Real, from 1.6 billion Real in April, the central bank said.

The central bank also revealed that net debt in May was 39.8% of GDP, unchanged from April. The central bank expects the number to fall to 39.7% in June, said Tulio Maciel, head of the central bank’s economic research department.

The central bank raised its 2011 forecast for net debt as a percentage of GDP to 39% from 38%, added Maciel. He also anticipated that the revised bank forecast for the 2011 budget deficit was hike to 2.5% from 1.9%, as faster inflation and higher borrowing costs increase its interest payments.