Itaú BBA - Brazil: Fiscal Policy in 2019

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Brazil: Fiscal Policy in 2019

January 7, 2019

Reforming Social Security is the main challenge of the new government


For the version with all charts and tables, please open the attached pdf file
 

Meeting the spending cap and primary budget targets requires discipline, but it should not be a major challenge in 2019. The golden rule should have a significantly lower imbalance than assumed in the budget, and Congress is expected to authorize its non-compliance.

In a more favorable scenario — in which the agenda for extraordinary revenues moves quickly, expense execution is more contained and development bank BNDES provides additional reimbursements to the National Treasury — the primary budget result may be slightly positive and public debt could decline temporarily in 2019.

To achieve permanent fiscal improvement, approving social security reform and redefining rules that adjust the minimum wage and wages paid to public servants will be the main fiscal challenges in the first year of the new administration. We expect the approval of a social security reform that produces a fiscal impact similar to that of the proposal discussed in Congress over the last two years. Furthermore, the 2020 Budgetary Guidelines Law (LDO), to be submitted on April 15, will be an important milestone for the two latest topics, signaling the new administration’s commitment to fiscal rebalancing and, particularly, to the spending cap in 2020, when the scenario may become more challenging.
 

Pedro Schneider
 

For the version with all charts and tables, please open the attached pdf file



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