Brazil is ready to raise taxes further, Finance Minister Joaquim Levy said on Tuesday, warning that the country's investment grade remains at risk as the government's fiscal results underperformed expectations.
Brazil posted a primary budget deficit of 2.3 billion reais ($721 million) in February, central bank data showed, against analysts' forecasts in a Reuters poll of a 1.5 billion reais surplus, highlighting President Dilma Rousseff's challenge in pulling government finances out of the red.
"We're monitoring tax revenues and will take measures if needed to avoid any risk that tax collections are not sufficient for our target," Levy told a Senate hearing.
Tax revenues have underperformed in recent months as Brazil's economy slips closer to recession. The primary budget deficit in the 12 months through February rose to 0.7 percent of GDP, drifting further away from Levy's target for a 1.2-percent surplus.
The primary budget balance represents revenues versus expenditures before interest payments are taken into account. As such, it serves as a measure of the country's capacity to repay its debt. It is also a politically sensitive gauge since Rousseff started her second term in January with a concerted effort to stave off a credit rating downgrade after years of lavish spending failed to spur growth.
Overall, when including interest payments, Brazil's budget deficit swelled to 58.637 billion reais in February. Goldman Sachs economist Alberto Ramos noted in the 12 months to February that shortfall rose to an "extremely large" 7.34 percent of GDP.
Yields on interest rate futures pared gains while Brazil's currency strengthened as Levy spoke. He opened the hearing with an one-hour-long presentation on the importance of fiscal adjustments.
Since taking office in January, Levy has severely limited government spending while raising taxes to help close the fiscal gap. Many of those measures require congressional approval, but lawmakers in the governing coalition have sought to water them down or even block what they say is legislation that will hurt workers and businesses.
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