Brazil primary budget surplus beats expectations

Brazil's budget surplus excluding debt-servicing more than doubled in February from a year earlier, thanks to a combination of rising tax collections and restrained payroll spending, the central bank data said on Thursday. The so-called consolidated primary budget surplus, which includes federal and regional governments and state companies, widened to 7.91 billion reais ($4.9 billion) last month compared to 3.18 billion reais in the year-earlier period.
The primary surplus came far above the 4.25 billion reais expected in a Reuters poll of 12 analysts. It was the biggest for the month of February, since the bank began tracking the data in the current format in 2001. The wider primary surplus helped keep the nominal budget deficit relatively stable at 11.20 billion reais in February versus 11.09 billion reais in the same month a year before.
The results "reinforce and give credibility to the finance minister and planning minister's initially fragile discourse. Now they are (delivering) part of the service," said Andre Perfeito, an economist at Gradual Investimentos in Sao Paulo. Brazil's government said in February it would slash the 2011 budget by around $30 billion as it sought to create the conditions for slower inflation and lower interest rates.
A jump in government spending by President Luiz Inacio Lula da Silva's administration last year ahead of the October elections had put the country's public accounts under pressure. But public accounts now seemed to be gradually on the mend. In the 12 months through February, the primary surplus was equivalent to 2.89 percent of gross domestic product, up from 2.79 percent in January and 2.77 percent in December.
The better fiscal results could also help ease the pressure on the central bank for more aggressive monetary tightening. "The practical impact is to reinforce (expectations for) a smaller hike in the Selic rate in the next meeting," Perfeito added. Brazil's monetary policy committee next meets to decide on interest rates on April. 19-20. Yields on short-term interest rate future contracts on Wednesday fell after the central bank signaled it would soon end a cycle of interest rate hikes.