GS Slams “Haphazard” Brazil Management

Downward revisions to Brazil’s primary surplus targets have prompted criticism from analysts at Goldman Sachs. “We are increasingly concerned by the ad-hoc approach to fiscal policy management and haphazard delivery of fiscal stimulus to the economy in recent months,” says the shop. It worries about erosion of institutional underpinnings for fiscal execution, as well as growing pressure placed on public financial institutions and state-owned enterprises to discount market signals and expand balance sheets and investment budgets. “Although we do not foresee a fiscal crisis or divergent debt dynamics in the near future we see the deterioration in the quality of fiscal execution as commanding a risk-premium in CDS space and the local yield curve,” it adds. Brazil targets a consolidated public sector aggregate primary surplus target of 3.3% of GDP in 2010-12, down from a 3.8% of GDP original target for 2009, which was lowered to 2.5%. The budget guidelines assume 4.5% real GDP growth in 2010 and 5.0% during 2011-12. “Furthermore, we highlight that the government is still working with somewhat unrealistic assumptions about real GDP growth: +2.0% in 2009 (we expect -1.0%) and 4.5% in 2010 (we forecast 3.0%),” says Goldman.