Brazil's Haddad backs limiting spending as fiscal issues worry markets

SAO PAULO (Reuters) - Brazil's Finance Minister Fernando Haddad said in an interview published on Tuesday that financial markets were right to be worried about the country's fiscal situation, but pledged to work to improve it, including by limiting spending.

WHY IT'S IMPORTANT

Brazil's government has been seeking new sources of revenue to meet fiscal targets that include reducing its fiscal deficit to zero, but market participants question its ability to fulfill that goal as it has been loath to adopt broad spending cuts.

BACKGROUND

Brazil has a target of zero deficit for the year with a tolerance margin of 0.25 percentage points of gross domestic product (GDP) in either direction, as established by a fiscal framework passed last year.

KEY QUOTES

"The fiscal framework will not work if spending is not limited," Haddad told newspaper Folha de S.Paulo.

"What Faria Lima Ave (Brazil's Wall St) is pointing out - in my opinion, with some exaggeration when it comes to the pricing of Brazilian assets - is that the spending dynamics going forward are worrying," he added.

"They could have an impact on the debt, and the government has to take action. The Finance Ministry has this on the table, 100%, with the same level of concern."

BY THE NUMBERS

Haddad said that real rates of 6.5-7% on public debt were "a problem" and that he has been defending to President Luiz Inacio Lula da Silva that a fiscal adjustment is needed to stabilize the fiscal situation in the long term.

He noted that government revenues need to be at around 19% of GDP and expenses below that for Brazil to reach a fiscal surplus, stabilize its debt growth and in turn prompt the central bank to lower interest rates.

(Reporting by Gabriel Araujo; Editing by Mark Potter)