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Brazil unveils $22.64 billion in budget cuts

Staff writer |
Brazil's government unveiled 69.9 billion Brazilian reais ($22.64 billion) in cuts to its 2015 budget, slightly below an earlier forecast.

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Discretionary expenses are being cut to 4.2% of GDP from 4.7% of GDP, bringing them back to 2013 levels. The reviewed budget assumes the economy will contract 1.2% this year, versus a 0.1% expansion in 2014.

Finance Minister Joaquim Levy had previously forecast 70 billion to 80 billion reais in cuts. Inflation is forecast to reach 8.26%, well above the official target, which is 4.5% with a tolerance range of two percentage points up or down.

The country's primary surplus, or government savings before interest payments, is forecast to reach 1.1% of gross domestic product, slightly below the targeted 1.2% of GDP.

Brazil needs to save more to reduce its debt-to-GDP ratio, Mr. Levy has said. The country's gross debt is at its highest in years at 62%, threatening Brazil's coveted investment-grade status.

Mr. Levy has pledged to deliver a 1.2% primary surplus, a target many analysts consider too high to be met.

Meeting the target would be a signal that Brazil is serious about saving taxpayer money to pay down debt, analysts say. Some analysts say that anything above 0.8% would already increase confidence in the government resolve.

But budget cuts needed to reduce spending can also hurt an already weak economy. GDP grew on 0.1% in 2014 and is widely expected to contract this year.

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