Brazil Is Said to Seek Flexible 2021 Fiscal Goal Amid Crisis
Brazil Is Said To Seek Flexible Fiscal Goal for 2021 Amid Crisis
(Bloomberg) -- Brazil’s economic team wants to adopt a flexible fiscal target for 2021 as uncertainties caused by the novel coronavirus make it difficult to estimate the impact of the crisis, according to four people with direct knowledge of the matter.
The government has until April 15 to send a bill to Congress with forecasts for next year. The bill has to set a fiscal target to comply with the country’s fiscal responsibility laws but given the difficulties in calculating the fallout from the pandemic, the economic team wants to make the goal flexible, the people said, asking not to be named because the discussions aren’t public.
The details on the proposal aren’t final yet, two of the people said. In the past, Brazil has had ranges for its fiscal target instead of a set number, but the mechanism adopted by the administration could be new, such as setting goals depending on economic scenarios, they said.
The crisis caused by the pandemic has prompted Brazilian policy makers to backtrack on investor-friendly plans to curb debt and bolster public accounts. The government is providing stipends to millions of informal workers, while the nation’s Senate is considering a constitutional amendment that would further boost spending and by-pass fiscal laws to fight the virus. Still, some lawmakers say that’s far from enough.
Fiscal responsibility laws, coupled with inflation targeting and a floating exchange rate, represent some of Brazil’s most important economic pillars. Government spending is closely monitored by investors, and was a main cause behind the country’s loss of its investment-grade status in 2015.
Public Calamity
Brazil declared a public calamity last month, which exempts the government from meeting this year’s target of a 124 billion-real ($24 billion) gap. The number for 2020 is now estimated at 419 billion reais, but could reach 500 billion reais, members of the economic team have said. The gap in 2021 could reach 150 billion reais, from an original estimate of 68.5 billion reais, two of the people said.
The Economy Ministry didn’t reply to messages seeking comment.
The economic team is treading carefully to avoid creating doubts on its commitment to fiscal austerity, two of the people said. It plans to reinforce the importance of preserving the spending cap to keep markets at ease, one of the people said.
Economic activity rose by 0.35% in February before the virus hit, according to a central bank report published on Tuesday. The nation’s gross domestic product may contract by 5% this year, former Finance Minister Henrique Meirelles said in an interview this week.
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