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LatinNews Daily - 07 April 2021

BRAZIL: Pandemic poses fiscal problems

On 6 April, the Brazilian government began paying out a new round of emergency aid to help vulnerable Brazilians in the context of the coronavirus (Covid-19) pandemic.

Analysis:

The reinstatement of the ‘auxílio emergencial’ pandemic handout was finally agreed upon last month, after weeks of haggling between federal lawmakers and the government. Most lawmakers and large parts of civil society argued that the aid was urgently needed to sustain poor Brazilians in the face of an inflationary surge and a raging second wave of Covid-19 infections; but the government led by President Jair Bolsonaro dithered over concerns with the fiscal impact of the measure, which last year cost around 4% of GDP. This new iteration of the handout will be less fiscally onerous as it is less generous and will reach fewer people; but it remains a strain on Brazil’s stretched public finances, as the country’s economic recovery looks compromised by the current severity of the Covid-19 epidemic, on top of which the government is grappling with problems with this year’s budget.

  • Pedro Guimarães, the president of the Caixa Econômica Federal state-owned bank, yesterday outlined the new emergency aid payments, which will reach 45.6m Brazilians over four months. Eligible recipients will receive a monthly R$150 (US$26.8) handout for single-person households, R$250 for families, or R$375 for households where a single mother is the sole breadwinner. The government expects the programme to cost R$43bn (US$7.69bn), an expenditure which will not be included within the constitutionally mandated spending cap.
  • Yesterday, during a press briefing on the International Monetary Fund’s (IMF) latest World Economic Outlook report, IMF chief economist, Gita Gopinath, and the deputy director of the IMF's research department, Petya Kovea-Brooks, both noted the positive impact of the emergency aid on Brazil’s economic outlook. Despite the severity of the ongoing health emergency – with Covid-19 claiming a record 4,195 lives yesterday – the IMF has revised up its GDP growth forecast for Brazil, now expecting a 3.7% expansion this year. This remains below the projected regional average of 4.6% growth for Latin America and the Caribbean.
  • Figures released by Brazil's central bank (BCB) on 31 March show that the central government recorded a R$20.6bn primary fiscal surplus in the first two months of the year, despite a R$22.5bn deficit in February. In the 12 months to February, the central government accumulated a primary fiscal deficit of R$743.2bn; the annual target outlined in this year’s budget is a R$247.1bn deficit. The January-February surplus is attributed to an increase in tax revenues early this year and the delay in the approval of the budget, which restricted the government’s spending capacity.
  • The budget, which has been approved by congress but is yet to be sanctioned by President Bolsonaro, adds to concerns regarding fiscal responsibility, after the reshuffling of allocated expenses by a congressional committee raised doubts over the viability of the budget’s execution. The government’s economic team has recommended that Bolsonaro veto parts of the budget to avoid being later accused of committing fiscal crimes – but to do so will risk tensions with congress.

Looking Ahead: With scientists warning that Brazil’s Covid-19 epidemic will continue to worsen throughout the month of April, economic stimulus measures will need to be matched by efforts to reduce transmission of the virus, namely vaccination and social distancing, to be truly effective. But Brazil’s vaccination efforts remain slow, while Bolsonaro continues to vehemently oppose social isolation measures.