Brazil posts record primary surplus

Brazil continued to improve its public accounts in June as higher tax income generated the largest primary budget surplus on record for the month and helped offset rising debt costs. The consolidated public sector primary budget surplus surged to 13.37 billion reais ($8.6 billion) in June, the central bank said on Friday, far higher than the 2.179 billion reais in June 2010.
The primary surplus, which represents the excess of revenue over expenses excluding debt interest payments, totalled 7.5 billion reais in May. The government had been expected to post a primary surplus of 15 billion reais, according to the median forecast of 11 analysts surveyed by Reuters. Estimates for a surplus ranged from 7.2 billion reais to 18 billion reais.
Tax collection surged in June from the year-earlier month on a one-time 6.7 billion reais from companies that paid overdue taxes. Brazil's government had ramped up spending last year ahead of October presidential elections, but President Dilma Rousseff, who took office on January 1, announced budget cuts of $30 billion in February to help cool inflation.
"There's been a return to normality in terms of meeting the target in the first half of the year," Tulio Maciel, head of economic research at the central bank, told a news conference. In the 12 months through June the primary surplus of 138 billion reais, or 3.54 percent of gross domestic product, exceeded the year-end target of 118 billion reais. But the running tally is expected to drop in September when the effect of last year's capitalisation of state oil giant Petrobras will be excluded.
Analysts, who look at a country's primary budget surplus as a gauge of its ability to service its debt, expect government savings to decrease in coming months. The government's increased savings partially offset debt servicing costs that rose to 19 billion reais in June due to interest rate hikes designed to quell inflationary pressures.
In June, Brazil posted an overall, or nominal, budget deficit of 5.618 billion reais, compared with 13.664 billion reais in June 2010. It was the lowest deficit on record for the month of June since 2007. The central bank has raised interest rates five times this year by a cumulative 175 basis points, to 12.50 percent. Brazil's net debt-to-GDP ratio edged down to 39.7 percent in June from 39.8 percent in May. The central bank expects that ratio to fall to 39.5 percent in July.