What is this? Brazil is withdrawing $1.5bn from its sovereign wealth fund to plug a hole in its budget.

President Dilma Rousseff justified the move saying the sovereign wealth fund was the equivalent of saving for a rainy day – and that a rainy day had arrived. With Brazil’s economy not growing, the government is missing its budget targets.

This from Itaú Unibanco:

In its 4th budget review of the year, the Planning Ministry reduced its GDP growth forecast to 0.9 per cent from 1.8 per cent and lowered expected revenues (net from transfers to state and municipalities) by R$10.5bn. This reduction was partially compensated by an expected withdrawal of R$3.5bn from Brazil’s sovereign wealth fund… Our forecast for the primary fiscal surplus this year is 1.1 per cent of GDP (target: 1.9 per cent of GDP). The bulk of the difference from our forecast to the target is lower revenues.

Critics argue the sovereign wealth fund would be better used for investment in such a way as to avoid adding to inflationary pressures in the economy.

Marina Silva, Rousseff’s main challenger at elections on October 5, said the use of the fund to balance the public accounts “demonstrates clearly that the government has put at risk the country’s stability and growth.”

However, the government’s use of the funds to plug its budget deficit is unlikely to affect its electoral chances. Brazilian voters appear to be more concerned with jobs than with other macro-economic headlines. And unemployment is the one thing that is still going right for the government, with joblessness remaining low.

This and a determined campaign of attack by Rousseff against her chief electoral rival has helped the incumbent recover lost ground in the polls. This week, polls showed she is now numerically equal with or ahead of Silva in a second round run-off that would take place on October 26 if no candidate wins an outright majority.

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