By Jeffrey T. Lewis
SÃO PAULO--Brazil's government will limit spending increases and aims to balance its primary budget next year while also increasing funding for programs intended to help the country's poorest residents, Finance Minister Fernando Haddad said Thursday.
The framework defines the rules the administration of President Luiz Inácio Lula da Silva must follow as it works to boost economic growth and government investment while trying to keep deficits and debt under control.
The left-wing Mr. da Silva's spending priorities have raised concern among investors and the Central Bank of Brazil over the effect they would have on inflation, but financial markets reacted calmly after details of the framework were released, with the stock market up about 1.5% in early-afternoon trading and the Brazilian real slightly stronger against the dollar.
Brazil's Congress approved in December, before Mr. da Silva took office, a constitutional amendment allowing the government to boost spending above a ceiling set in a previous amendment. Since he was sworn in, Mr. da Silva has defended increased spending on education, healthcare and investment to help boost growth.
Under the rules announced Thursday, the government can boost spending every year by 70% of the amount that revenue increased the previous year. If the government exceeds that spending limit, the following year it would only be permitted to increase spending by 50% of the previous year's revenue increase.
The government hopes to reduce its primary budget deficit to 0.5% of gross domestic product this year. The primary budget balance excludes interest payments from the calculation and is a measure of a government's ability to reduce debt.
The primary deficit limits will have a tolerance band of 0.25% of GDP in either direction, a measure intended to increase the government's flexibility, Mr. Haddad said. The administration's goal is to have a balanced primary budget in 2024, a primary surplus of 0.5% of GDP in 2025 and a primary surplus of 1.0% of GDP in 2026, the final year of Mr. da Silva's current term in office.
Write to Jeffrey T. Lewis at jeffrey.lewis@wsj.com
(END) Dow Jones Newswires
03-30-23 1203ET
