The budget gap in May widened to 32.4 billion reais ($14.7 billion) from 4.6 billion reais a month earlier. The primary deficit, before interest payments, in the same month was 11 billion reais, wider than the median forecast of a 9 billion reais primary deficit from 15 economists surveyed by Bloomberg.

President Dilma Rousseff, who faces re-election in October, has announced tax breaks for companies and increased social spending even as fiscal management comes under scrutiny. Standard & Poor’s this year handed Brazil its first credit downgrade since 2002 on weak growth and expansionary fiscal stance. Government spending may further fuel inflation, which economists expect to reach the highest level this year since 2011.

Swap rates on the contract due in January 2017 rose one basis point, or 0.01 percentage point, to 11.51 percent at 9:38 local time. The real weakened 0.3 percent to 2.2012 per U.S. dollar.

The primary surplus as a percentage of gross domestic product in the year through May was 1.52 percent, the central bank report said today. Brazil aims for a 1.9 percent primary surplus target this year, the Finance Ministry said in a Feb. 20 statement.

Tax Credit

Exporters of manufactured goods will receive the equivalent of 0.3 percent of foreign sales as tax credit, Finance Minister Guido Mantega told reporters in Brasilia on June 18.

Brazil will make payroll tax cuts permanent as it strives to fuel employment and growth, Mantega said May 27. The reduction, which cost the government 21.6 billion reais a year, will benefit 56 industries.

The central government in May posted a 10.5 billion reais deficit, excluding interest payments, the widest in more than five years, as tax revenue dropped, the Treasury said in a report distributed in Brasilia on June 27. The median estimate from nine economists surveyed by Bloomberg was for a balanced primary budget.

S&P in March downgraded Brazil one level to BBB-, one step above junk, with a stable outlook. The move ended a decade-long stretch of upgrades for the world’s second-largest emerging market.

Policy makers on May 28 decided to hold the benchmark Selic unchanged at 11 percent after increasing borrowing costs by 375 basis points in the year through April. Annual inflation through mid-June reached 6.41 percent, above policy makers’ 4.5 percent target.

Brazil’s economy expanded 0.2 percent during the first three months of this year, compared to 0.4 percent growth in the fourth quarter of 2013. Analysts in a weekly central bank survey expect growth to slow to 1.10 percent this year as consumer prices accelerate to 6.46 percent, according to the study published this morning.

Latin America’s largest economy expanded by 2.5 percent last year.