In February, Brazil’s central government saw a significant deterioration in its budgetary situation, according to data released by the Treasury on Tuesday. Despite an increase in revenues, the government faced challenges as expenses surged.

The primary budget deficit for the central government reached 58.4 billion reais ($11.7 billion) in February, marking a notable 37.7% increase in real terms compared to the same month last year.

Total spending soared by 27.4% from February 2023, amounting to 190.9 billion reais. Much of this increase was attributed to court-ordered debt payments, totaling 30.1 billion reais, as explained by the Treasury.

Treasury Secretary Rogerio Ceron noted that the timing of these court-ordered payments, usually made in May or June, distorted the comparison with expenditures from February of the previous year.

Meanwhile, net revenue saw a significant rise of 23.4% year-on-year, reaching 132.5 billion reais. This increase was largely driven by record tax revenue for the month, supported by the taxation of closed-end funds and the reinstatement of federal taxes on fuels.

However, despite the government’s reliance on revenue growth to mitigate the deficit, market skepticism persists regarding its ability to meet its fiscal targets. Last week, the Planning and Finance ministries adjusted their projections for public accounts, maintaining the goal of a primary deficit equivalent to 0% of GDP. Yet, market estimates suggest a deficit of 0.75% of GDP, according to a central bank survey.

Year-to-date, the central government has recorded a primary surplus of 20.9 billion reais, significantly lower than the surplus of 38.3 billion reais from the same period last year, primarily due to increased spending.

Looking ahead, the government is expected to submit its fiscal target for next year to Congress by mid-April. This follows indications that it aims for a primary surplus of 0.5% of GDP in 2025 and 1% of GDP in 2026. However, the feasibility of these targets remains uncertain, with Ceron acknowledging that achieving them hinges on the country’s fiscal recovery trajectory.