Brazil’s Budget Foreshadows Another Year of Massive Spending
Brazil President Jair Bolsonaro enacted a budget that will likely keep growing in size this year, as the government faces competing demands to spend more during the pandemic and to fund lawmakers’ projects in their home states.
Bolsonaro vetoed almost 20 billion reais ($3.7 billion) in expenses, including 12 billion reais that had been set aside for lawmakers’ projects as well as some discretionary spending, according to the budget law published in the country’s official gazette late on Thursday.
That won’t be enough to completely cover the 29 billion reais in mandatory outlays that Economy Minister Paulo Guedes said were underestimated by congress during the budget approval. The economy ministry will still have to freeze about 9 billion reais in discretionary spending later in the year to balance the budget.
The vetoes followed an agreement between Guedes and Lower House Speaker Arthur Lira. After weeks of impasse, Bolsonaro gave a partial win for both men by finding money for mandatory expenses without vetoing all projects backed by lawmakers. Still, the disagreement left a bitter taste in the mouth of the house speaker, who will now pressure the president to reduce his minister’s powers by putting allies in key positions of the economy ministry, according to two people with knowledge of the matter who requested anonymity because the disucussion isn’t public.
This year’s virus expenditures, which were excluded from a spending ceiling rule aimed at keeping public finances in check, already amount to 123 billion reais. That’s only a quarter of the massive $524 billion reais spent in 2020, but hardly the final figure, as emergency programs such as cash handouts to poor Brazilians have a good chance of being extended.
The pandemic spending includes 35 billion reais for programs designed to protect jobs and help small companies, in addition to 44 billion reais in cash handouts and another 44 billion reais from leftover Covid costs from 2020. The measures, approved in a separate bill on Monday, helped to settle a dispute between congress Guedes, but failed to ease fiscal concerns among investors.
“That’s a decision that shows we have difficulty setting limits and making choices,” former central bank chief Ilan Goldfajn said in Tuesday interview. “The government will try to control spending during the budget execution, but it runs a big risk of being unable to do so.”
The pandemic has walloped Latin America’s largest economy, overwhelming hospitals and sending the daily death toll to record highs earlier this month. It has also put pressure on Bolsonaro to distance himself from austerity, and instead seek political support from centrist parties that run both houses of congress ahead of 2022 elections.
Fiscal fears have been weighing on local assets since Brazil deployed massive emergency spending during the pandemic, posting a record budget gap of 743 billion reais in 2020. The real has been the fourth worst-performing emerging-market currency so far this year.
©2021 Bloomberg L.P.