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Brazil to shift funds from investments to police, air traffic

BRASILIA, July 27 (Reuters) - Brazil's government will redirect 2.2 billion reais ($700 million) from investments to essential services such as air traffic control to avoid disruptions caused by its austerity drive, Planning Minister Dyogo Oliveira said on Thursday.

With the Brazilian economy still reeling from its worst recession on record, policymakers have frozen about 45 billion reais in federal spending and raised taxes as they struggle to meet their budget target for the year.

In recent weeks, the fiscal discipline has started to disrupt services such as passport services, raising concerns about the feasibility of an agenda that many investors consider crucial for the long-term stability of public debt.

Oliveira said the government will seek to preserve essential services such as civil defense, federal police investigations and road and air traffic control at the expense of spending on public investments under the so-called PAC program.

The program originally had 36 billion reais earmarked for public investments in 2017 but successive budget freezes have whittled it to 19.7 billion reais.

Oliveira reiterated that he expects the budget freeze to be eased later this year with the help of one-off revenues.

Asked whether the government could change this year's budget target, Oliveira said he would not speculate.

Brazil is targeting a budget deficit of 139 billion reais this year before interest payments. The deficit in the 12 months through May reached 167.6 billion reais, equivalent to 2.59 percent of gross domestic product.

($1 = 3.15 reais) (Reporting by Silvio Cascione and Marcela Ayres; Editing by Bill Trott)