Brazils fiscal framework aims for 2024 zero primary deficit, 2025 surplus -sources

BRASILIA (Reuters) – The goal of Brazil‘s new fiscal framework will be a zero primary deficit in 2024, followed by surpluses in subsequent years, as President Luiz Inacio Lula da Silva seeks a sustainable trajectory for the country’s public debt, government sources told Reuters on Wednesday.

According to one of the sources, the primary surplus will be equivalent to 0.5% of GDP in 2024, rising to 1% of GDP in 2025. The new framework will combine a target for primary results with a spending rule and will have adjustment mechanisms in case of noncompliance.

“It is a target with bands, associated with a spending rule where expenditure cannot grow by more than 70% of revenue,” said the source, adding that there will be a cap on annual expenditure growth.

Sources spoke anonymously, as the topic is being addressed in private conversations with congressmen.

The framework is needed to ease fiscal concerns after Lula secured congressional approval for a multibillion-real package that bypasses the constitutional spending cap so his government could boost social spending and fulfill campaign promises.

This years primary deficit target, the first of the leftist Lula administration, is 228.1 billion reais ($44 billion), but the Finance Ministry recently estimated that the shortfall will be 107.6 billion reais, equal to 1.0% of GDP, helped by a jump in expected tax revenue.

Earlier on Wednesday, Institutional Relations Minister Alexandre Padilha said the government was finalizing the new rule, adding that Lula and Finance Minister Fernando Haddad would meet with this purpose. Haddad is expected to present it to leaders of the lower house of Congress later in the day.

Talking to reporters, Padilha said that the leaders of Brazils Congress have indicated that, once submitted, the fiscal rules should be quickly approved.

($1 = 5.1351 reais)

(Reporting by Lisandra Paraguassu, Marcela Ayres and Bernardo Caram in Brasilia; Editing by Steven Grattan and Matthew Lewis)