Brazil’s government on Friday announced a R$23.4 billion public spending freeze along with plans to ask Congress for a “flexible” 2016 budget target in the face of declining economic activity. Currently, the government is commited to a 2016 primary budget surplus equal to 0.5% of gross domestic product. However, Finance Minister Nelson Barbosa stated frankly that a more “flexible” target was needed given declining government revenues amid a recessionary economy. According to economists, a “flexible” target could mean a zero surplus or a small deficit for the year. Deteriorating public accounts, along with a persistent recession, led Standard and Poor’s to downgrade Brazil’s sovereign credit rating earlier this week. Brazil’s rating is now two notches below investment grade. The Finance Ministry on Friday painted a dire picture for Brazil’s economy during the rest of 2016, forecasting a GDP decline of 2.9% but with inflation still high at 7.1%.
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