Brazil's Congress approved next year's budget bill, rejecting wage increases for pensioners and public servants in a bid to contain spending as volatility roils international markets.
President Dilma Rousseff's coalition in Congress did not allow a proposed 7.7 billion-real (Dh15.24 billion) increase in salaries for judicial officials to be included in the legislation. During a session in Brasilia on Friday, lawmakers also denied a 10 billion-real increase for pensioners who receive more than the country's minimum wage.
"The worsening of the international crisis sets a scenario of uncertainty and requires caution in the adoption of measures that expand permanent expenses," wrote Arlindo Chinaglia, a member of Rousseff's Workers' Party, in the final report of the bill. "It's better for Brazil to ensure investment and employment levels."
Europe's deepening debt crisis has reduced demand for Brazil's exports. Brazil's economy, Latin America's largest, contracted for the first time in two years in the third quarter after policymakers raised borrowing costs earlier in the year and the European and US debt crises hurt confidence. GDP shrank 0.17 per cent in the quarter on an annualised basis.
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The bill, which still requires the president's signature to go into effect next year, forecasts an increase of 37.6 per cent in public investments compared to this year's budget, or a rise of 79.7 billion reais.
Rousseff said on December 16 that wage increases for public servants would weaken the country amid a "violent world crisis". She has urged lawmakers to help the government limit public spending.
The 2012 budget bill targets a surplus before interest payments of 139.8 billion reais for the federal, state and local governments, up from 127.9 billion reais this year. By October, Brazil had accumulated a budget surplus before interest payments of 118.6 billion reais.
According to the budget bill approved on Friday, net debt will fall to 36.5 per cent of GDP in 2012, from 38.2 per cent in October. Rousseff, who took office on January 1, has vowed to reduce Brazil's net debt to 30 per cent of gross domestic product by 2014.
The budget bill approved by lawmakers on Friday forecasts the nation's GDP will grow 4.5 per cent next year. This is down from the 5 per cent growth forecast by Rousseff's administration in the original proposal.
"Their forecast is not realistic," said Andre Perfeito, chief economist at Gradual Investimentos in Sao Paulo in a phone interview. He predicted GDP will expand 2.3 per cent next year.
The central bank forecasts economic growth of 3.5 per cent in 2012.