Brazil & Southern Cone - August 2007 (ISSN 1471-4431

The draft budget for 2008 envisages GDP growth of 5%, which would take the economy's output up to G$56.6trillion. The problem is that the figures do not appear to add up. The government is forecasting that both imports and tax revenues will fall this year. Such a combination is usually a sign of a faltering economy. Most independent economists say that the economy will grow by, at best, 4% in 2007. 

The government is also expecting exports of US$2.76bn, virtually the same as they were in 2006 and imports of US$6.24bn, down US$50m on the 2006 result. Tax revenues will fall from G$7.6tr to G$6.6 trillion. 

Inflation: In July inflation was 0.4%, up from June's minus 0.7%. This brought the rate for the first seven months to 1.1% and the rate for the past 12 months to 7.5%. In 2006 the rate was 12.5 %. 

Budget
The government is drawing up the 2008 budget on the expectation of significant pay increases for civil servants. The biggest single increase is a 20% pay rise for teachers. The big question is whether the government is being realistic in its budgeting. The government claims that total government spending will be around G$13.5 trillion, or only 8% more than 2007 spending. Given the scale of the pay increases it, and congress, have authorised and the way the public sector has been hiring, this forecast looks far too low. The cost of the teachers' pay rise is likely to be around G$330bn (US$55m) in a full year. The money had not been budgeted for this year, yet all that is needed to authorise the increase is approval from the senate.