Brazil Finance Minister Haddad Says Lula Meeting Touched on Balancing Budget

(Bloomberg) -- Brazil Finance Minister Fernando Haddad said he had a productive meeting with President Luiz Inacio Lula da Silva on Monday regarding the crucial evolution of public expenditures and tax waivers.

The goal of the meeting was to provide Lula with information so that the government could design a budget guaranteeing people’s rights and creating space for investment next year, Haddad said.

“In regards to gross domestic product, we did a rearrangement in order to seek balance in public accounts,” he said.

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Brazil interest rate futures briefly pared increases following Haddad’s remarks as investors closely follow budget trends in Latin America’s largest economy. Local assets have sputtered in recent weeks on mounting worries about Haddad’s ability shore up public accounts, and amid setbacks to his efforts to eliminate the country’s primary fiscal deficit — which excludes interest payments — this year.

Concerns about higher spending have also prompted traders to pencil in odds of borrowing cost hikes later in 2024.

Haddad has attempted to close Brazil’s budget gap primarily through new revenues, but is facing increasing pressure to consider spending cuts. His comments were an indication that the government is now attempting to address criticism of a fiscal approach that has treated tax increases as the only solution, and helped “reduce a little the tension that has increased in the last 30 days,” said Davi Khattar, an analyst for asset manager Atlas One.

Still, fiscal uncertainty continues to weigh on local assets, with “low market expectations” about cost-cutting solutions, said Rafael Ihara, chief economist at Meraki Capital.

Lula is very “familiarized” and “accustomed” to budget debates, Haddad told reporters. “Lula received the numbers with a lot of interest,” he said regarding Monday’s meeting.

The leftist president also asked for a strong commitment to vote on tax reform regulations, Haddad said.

--With assistance from Raphael Almeida Dos Santos and Felipe Saturnino.

(Adds analyst comments from sixth paragraph)

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