O real extended losses compared to dollar after the Minister of Finance, Fernando Haddaddeclined to confirm the size of the spending cut the government is considering. This Tuesday, the American currency rose 0.92%, to R$5.761, the highest value since March 2021.
The government Lula is currently drafting a series of measures aimed at reducing spending amid growing fears of investors about the size of Brazil’s fiscal deficits.
The president, however, wants more information about the proposals drawn up by the Finance and Planning ministries, and the president will ultimately decide the size of the package and when it will be announced, Haddad told reporters on Tuesday in Brasilia.
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Earlier, the newspaper O Globo informed that the government was evaluating cuts of between R$30 billion and R$50 billion (US$8.7 billion), but Haddad said no decision had been made.
The real continued its slide on a day when Latin American currencies weakened across the board, as Haddad’s comments heightened uncertainty over the size and timing of spending cuts. Brazilian shares reached lows of the day and future interest rates rose across the curve.
Investors have been anxiously awaiting news about the spending reductions since the Minister of Planning, Simone Tebetpromised at the beginning of the month that the government would reveal “as many measures as possible” after the municipal elections that took place last Sunday (27).
Fiscal fears have weighed on Brazilian assets throughout the year, making the real one of the main currencies with worst performance in the world.
Haddad met with Lula on Monday (28) to discuss the plans, further fueling expectations that an announcement could be imminent. Both Tebet and Haddad emphasized that the cuts need approval from Lula, who has previously expressed skepticism about the need to reduce spending.
“The delay in publishing the spending cut plan gives room for the market to distrust the government’s real intention,” said Paulo Nepomuceno, derivatives desk operator at Mirae Asset.
The economic team is considering measures that would limit the growth of some social programs so that they remain within the rules of the country’s so-called fiscal framework, according to people with knowledge of the matter. This would limit the growth of these programs to 2.5% above inflation per year, according to fiscal rules.
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