February 2, 2018 / 4:11 PM / 10 months ago

UPDATE 1-Brazil freezes $2.5 bln in gov't expenses on Eletrobras doubts

(Adds details from press conference)

By Marcela Ayres

BRASILIA, Feb 2 (Reuters) - Brazil's government on Friday froze 8 billion reais ($2.5 billion) in expenses for this year under a revised budget to account for potential delays in a plan to privatize power utility Centrais Elétricas Brasileiras SA .

Policymakers expect to raise 12.2 billion reais through the privatization of Eletrobras, as the power utility is known.

Those funds would help to drive the budget deficit to 154.8 billion reais before interest rate payments in 2018, below the deficit target of 159 billion reais, according to the revised budget.

But uncertainty over whether the plan could pass Congress this year led policymakers to freeze spending to safeguard the fiscal target even if none of those revenues materialized, Planning Minister Dyogo Oliveira said in a press conference.

President Michel Temer's administration has struggled to gather support for the plan among lawmakers ahead of presidential and parliamentary elections in October.

The government also froze an additional 8.2 billion reais worth of expenses meant to be moved between different areas, but it plans to unfreeze them once Congress approves the relocation, Oliveira said.

The moves highlight how Brazil's government is racing to pass unpopular bills and curb a gaping budget deficit following a sovereign downgrade last month.

Reuters had reported that policymakers would cancel between 5 billion and 8 billion reais in public spending for 2018 to comply with a constitutional amendment that caps expenditure growth.

But lower-than-expected expenses related to unemployment benefits and other policies allowed the government to keep its expenditure estimates within the spending ceiling, Oliveira said. (Reporting by Marcela Ayres; Writing by Bruno Federowski; Editing by Chizu Nomiyama and Paul Simao)

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