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BRASILIA, Feb 2 (Reuters) - Brazil is at an “inflection point” where more government spending could erode its fiscal credibility in the eyes of investors and potentially damage the economy, according to Central Bank of Brazil President Roberto Campos Neto.
In an online address to the World Trade Symposium that was recorded last Friday and broadcast on Tuesday, Campos Neto said any further fiscal stimulus should be matched with spending cuts elsewhere to ensure public finances are put on a longer-term sustainable path.
“The message now is that if for some reason we need further fiscal stimulus, it has to have a counterpart which saves money from some other place,” Campos Neto said.
“(That’s) because we are at an inflection point in which doing more fiscal (support), because of the credibility element, might not achieve the goal that is desired,” he said.
Campos Neto said speeding up the coronavirus vaccination process in Brazil, which has suffered one of the worst outbreaks of the virus in the world, was more important to the economy than further government spending.
Brazil’s government put together one of the most generous fiscal support programs of any emerging nation last year to help families and businesses get through the pandemic. It was worth more than 8% of gross domestic product.
This largesse helped swell the budget deficit and national debt to record levels. Emergency cash transfers to millions of Brazil’s poorest people expired on Dec. 31, and pressure is mounting on the government to extend them.
But Campos Neto warned such a move could further unnerve investors, who have already pushed market-based interest rates higher and the Brazilian currency lower on concerns about the longer-term trajectory of public finances.
“What we need to do is push (economic) reforms because the way you are able to sustain this debt and eventually reach an equilibrium is to get credibility,” Campos Neto said. “And to get credibility we need to tell people ... that we are serious about fiscal convergence.” (Reporting by Jamie McGeever, Editing by Franklin Paul and Paul Simao)