(Bloomberg) -- Brazil’s Finance Ministry reduced its forecast of budget savings from President Luiz Inacio Lula da Silva’s austerity plan after the country’s Senate approved on Friday a watered-down version of the program.
The government expects the package to generate about 69.8 billion reais ($11.5 billion) in savings over the next two years, some 2.1 billion reais less than the previous forecast, according to documents released by the Finance Ministry late on Friday.
The lower estimate is more pessimistic than a forecast given earlier Friday by Finance Minister Fernando Haddad, who said he expected the changes made by Congress to cut potential savings by only 1 billion reais. Still, private sector economists are even more conservative in their forecasts, with Santander Brasil foreseeing savings of about 50 billion reais in the next two years and XP Inc. projecting 44 billion reais.
Among the changes, the Finance Ministry trimmed the estimated savings from programs including the so-called continuous payment benefit, a social program that provides aid to low-income and elderly Brazilians with disabilities, and the Bolsa Familia social welfare program. Expected savings from measures like the changes in the minimum wage and salary bonuses to low-income workers were revised upwards.
Even with the plan receiving a green light from Congress, it still failed to allay investor concerns about Brazil’s deteriorating public finances. A selloff in the real intensified after the package was announced on Nov. 27, forcing the central bank to adopt extraordinary measures to shore up the real, including dollar spot sales and credit line auctions.
--With assistance from Martha Beck and Daniel Carvalho.
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