Exclusive: Drought could make Brazil lower 2014 fiscal goal - source

Wed Feb 12, 2014 4:39pm EST
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By Alonso Soto and Luciana Otoni

BRASILIA (Reuters) - A severe drought stretching Brazil's finances by pushing up its energy bill could force the government to lower its primary budget surplus target this year, a senior official told Reuters.

President Dilma Rousseff's credibility has been damaged by her government's failure to meet its fiscal targets and investors doubt Brazil will be able to even repeat last year's primary surplus of 1.9 percent of gross domestic product, which was considered disappointing.

A primary budget surplus is the surplus before debt payments and is seen as a measure of the country's ability to repay debt.

Just a few months ago, the government had been eyeing a slightly more ambitious primary surplus target for 2014, but a drop in hydroelectric output caused by the drought will force it to spend more on subsidizing power supplies.

"We need to have an internal discussion about the energy bill and its trade-offs," said the official, a member of the government's economic team, who asked not to be named.

"We need to find a balance between our fiscal position and (energy) prices," the official told Reuters late on Tuesday, adding that a decision on a primary surplus goal could be taken as soon as next week.

A credible surplus goal is crucial for Rousseff to reassure rating agencies threatening to downgrade Brazil's debt rating this year.

A more realistic surplus target could help calm investors rattled by the recent selloff in emerging markets, which was triggered by a slowdown in China's economy and the withdrawal of U.S. monetary stimulus, analysts say.   Continued...

A worker of SABESP, a Brazilian enterprise of Sao Paulo state, that provides water and sewage services to residential, commercial and industrial areas looks at the cracked ground of Jaguary dam in Braganca Paulista, 100 km from Sao Paulo January 31, 2014. REUTERS/Nacho Doce