Brazil's primary budget deficit widened more than expected in July, central bank data showed on Monday, threatening government efforts to eke out at least a small surplus this year to fend off a debt-rating downgrade. Brazil posted a primary budget deficit of 10.02 billion reais ($2.81 billion) in July, well above market estimates for a gap of 7.2 billion reais and the third straight monthly deficit. Wall Street ratings agencies and bondholders closely watch the gauge since it measures how much current government revenue is available to pay interest on the debt.
Rebalancing the public accounts after years of heavy spending is a priority for President Dilma Rousseff as she scrambles to avoid losing Brazil's investment-grade rating next year. With the economy contracting rapidly in what appears to be the worst recession in decades Rousseff faces an uphill battle. The Brazilian economy shrank 1.9 percent in the second quarter, sinking into recession after two quarters of consecutive contractions. Many economists believe Brazil will not see signs of a recovery until well into 2016. The shaper downturn has dragged down tax revenues, dulling Rousseff's measures to bolster savings that included steep tax hikes to businesses and consumers.
In the 12 months through July, the primary budget deficit widened to an equivalent to 0.89 percent of gross domestic product from 0.80 percent in the year ended in June. In July, the government cut its consolidated primary surplus goal for this year to 8.7 billion reais, or 0.15 percent of gross domestic product, from 66.3 billion reais, the equivalent of 1.1 percent of GDP, originally budgeted.