Itaú BBA - Social Security reform item by item: impacts and dilutions

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Social Security reform item by item: impacts and dilutions

abril 26, 2019

Reform is essential to fiscal rebalancing

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

 The pension reform, as proposed to the National Congress, implies savings of about BRL 1.25 trillion over 10 years between 2020 and 2029, or a primary result around 2.5 pp higher in 2027, compared with the scenario without reforms. Even if approved without any changes, the reform is not enough for the public sector to return to primary surpluses. Thus, eventual dilutions in its content imply the need for an even more significant effort to rebalance the fiscal accounts, limiting economic growth and the maintenance of interest rates at historically low levels.

 We estimated the impact item by item of the reform proposal and of eventual dilutions in the proposal, particularly in the three transition rules for the minimum age of 65 for men and 62 for women, which is the main measure in terms of savings generated by the reform.

 We expect that a reform will be approved with a fiscal impact of 50% to 75% relative to the proposal sent by the government, i.e., with savings of BRL 670 -990 billion over 10 years and a primary result between 1.4 pp and 1.9 pp of GDP higher in 2027, after the removal of changes in rural pensions, the welfare benefit program ("BPC") and the minimum contribution time, in addition to changes in transition rules.
 

Pedro Schneider
 

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



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