Government Accounts – Improvement in April

After the disappointing results concerning the Brazilian Government’s first quarter, 2010
performance in balancing its budget, showing a primary deficit of R$ 216 million, great
expectations for April were used as an explanation as to why the first quarter was not
good. Results for April were issued this week, and did not disappoint.

In the month of April, the primary result was a R$ 19.8 billion surplus, of which R$ 16.5
billion came from the Federal Government, and 3.6 billion came from State
Governments. Government controlled companies had a deficit of R$ 350 million. The
April figures reflect the ability of the government to collect revenues from an economy
that is growing quickly.

Financial expenses, largely interest, was an expense of R$ 14.5 billion giving a positive
nominal result of R$ 5.3 billion (the lower financial expenses were due to the fewer
number of work days in April as compared with March. The result for March was a
nominal deficit of R$ 17.1 billion.

For the first four months of 2010, the primary result was a positive R$ 36.6 billion
(3.41% of GDP), compared to R$ 30.7 billion in 2009, and R$62.8 billion in 2008. The
nominal result was a deficit of R$ 22.8 billion (negative R$ 22.0 billion in 2009, and a
surplus of R$ 7.4 billion in 2008). Interest expense was R$ 59.5 billion as compared with
R$ 52.8 billion in 2009, and R$ 55.4 billion in 2008.

The Brazilian Government’s debt position reached 44.6% of GDP in April, with an
increase of R$ 92.5 billion largely due to an issue of R$ 74.2 billion in debt by the
Government development bank, BNDES. The structure of the Government`s cost of
borrowing is shown below:

Type % of financing
FX linked 0.5%
Selic 29.4%
Pre-Fixed 26.9%
Inflation linked 24%
Other 19.2%

The Government is clearly avoiding any adverse foreign exchange expense, as the Real is
expected to weaken further against the US Dollar. However, with the recent increase in
the Selic rate, and expected further increases, interest expense is unlikely to decline.

The April result largely met the expectations that the Government had created, and puts it
back on target for meeting its fiscal targets for 2010.