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UPDATE 2-Brazil's government cuts 2021 budget deficit forecast

·2 min read

(Adds Economy Ministry official's longer-term forecast)

By Jamie McGeever and Isabel Versiani

BRASILIA, July 22 (Reuters) - Brazil's government on Thursday cut its 2021 primary budget deficit forecast, based on a bimonthly revenue and expenditure report which showed an expected jump in tax revenues on the back of stronger economic growth.

The Economy Ministry now expects a deficit excluding interest payments of 155.4 billion reais ($30 billion) this year, or 1.8% of gross domestic product, down from 187.7 billion reais, or 2.2% of GDP, in May's report.

It raised its 2021 net revenue forecast by 43.1 billion reais to 1.476 trillion reais, and increased its primary spending forecast by 10.8 billion reais to 1.632 trillion reais.

Brazil registered a record tax take in the first half of the year, figures this week showed. The Economy Ministry said in its latest report on Thursday that it now has the flexibility to free up an additional 4.5 billion reais in this year's budget.

The new forecasts are based on the government's latest economic growth forecast for this year of 5.3%, revised up last week from 3.5%.

Speaking in a virtual news conference after the report's release, special secretary to the ministry Bruno Funchal said Brazil is on track to return to a primary surplus in 2023 or 2024.

Regarding next year's budget, Funchal said there is room to accommodate President Jair Bolsonaro's plan to raise the nationwide "Bolsa Família" welfare program's average monthly payments to 300 reais, but it will be tight.

"There is room, but it may end up limiting space for other things, like investment, for example," Funchal said.

Following the government's decision to extend emergency cash transfers to millions of the country's poorest and most vulnerable people through October, the Economy Ministry now expects "extraordinary credit" expenditure this year to rise by 25.4 billion reais from May's estimate to 124.9 billion reais.

Extraordinary credit covers spending related to fighting the coronavirus pandemic, mainly emergency transfers, which are not subject to the usual budget rules. ($1 = 5.20 reais) (Reporting by Jamie McGeever and Isabel Versiani in Brasilia Editing by Paul Simao and Matthew Lewis)