Brazil Government Unexpectedly Posts Primary Deficit

April 29 (Bloomberg) — Brazil’s central government unexpectedly posted a budget deficit before interest payments in March, after the government increased public spending by 9.2 billion reais ($5.31 billion).

[see note on precatórios in 6th and 7th paragraphs]

Brazil’s treasury, social security agency, and central bank posted a primary deficit of 4.6 billion reais, compared with a deficit of 1.09 billion reais in the previous month, the government said in a statement distributed in Brasilia today. Economists expected a surplus of 2.03 billion reais, according to the median estimate of 10 analysts surveyed by Bloomberg.

“The increase in public spending raises the burden on the central bank to contain inflation and ease economic expansion,” said Diego Donadio, senior economist with BNP Paribas in Sao Paulo. “The fiscal spending is a source of concern because it will impact economic activity ahead.”

Government spending can fan inflation by bolstering demand for goods and services. Central bankers raised the benchmark interest rate to 9.5 percent yesterday, from a record low of 8.75 percent, in a bid to rein in consumer price increases that exceeded the government’s 4.5 percent target in every month this year. It was the first rate increase since September 2008.

Public spending rose 35 percent last month from February, the treasury said. Federal revenue increased 9.6 percent to 62.6 billion reais in March from 57.1 billion reais in February.

The government also was forced to pay 6.8 billion reais in so-called “precatorio” court judgments.

Precatorios are court ordered government payments to individuals and companies. In February, the central government’s total payouts on precatorios came to 252.4 million reais.

The real rose 1 percent to 1.7319 per dollar at 3:35 p.m. New York time from 1.7485 yesterday.

–Editors: Robert Jameson, Harry Maurer

To contact the reporter on this story: Andre Soliani in Brasilia at at  asoliani at bloomberg.net; Arnaldo Galvao in Brasilia Newsroom at  agalvao1 at bloomberg.net

To contact the editor responsible for this story: Joshua Goodman at  jgoodman19 at bloomberg.net

April 29, 2010, 3:52 PM EDT

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