Brazil throws money at Covid-19, but will the plan work?

The federal government announced today that it will dedicate BRL 147.3 billion to fight the negative effects of the Covid-19 pandemic in Brazil. While this is an impressive-sounding sum—it would be enough to cover Brazil’s fiscal debt, for example—experts are unsure whether it will suffice to keep the country from falling into a recession.  

According to analysts from XP Investimentos, while the package is a step in the right direction, the government’s program is limited and consists more of “rearranging” funds than bringing in new money. They estimate that only BRL 31.8 billion of the full total is actually new resources and “it is unclear how stimulating this may be in the short term,” they wrote in a report.

In their view, “the first measure was far from what was expected,” which is likely to bring GDP expectations down even further, “unnecessarily transferring the responsibility to the Central Bank”. Analysts now predict that Central Bank will slash benchmark interest rates by 0.5 percentage points during its Wednesday meeting, and “the chances of a 0.75 percentage-point [increase] have risen considerably after the announcement”. 

This comes after the Central...