Economy

Market shows concerns as economy shifts into ‘election mode’

Financial analysts are becoming even more skeptical of the Bolsonaro government amid a series of crises, and risk abandoning the president before next year's election

Market shows concerns as economy shifts into 'election mode'
President Jair Bolsonaro has one priority: boosting his re-election chances. Photo: Isac Nóbrega/PR

Amid the president’s dwindling popularity, anemic Q2 GDP results, and market perception of widespread economic downturn, the Brazilian government submitted its 2022 budget bill to Congress on Tuesday. As expected, the proposal was less political and does not indulge far-right President Jair Bolsonaro’s demands for the 2022 election — which had been a major concern for the Brazilian financial sector.

However, with its use of outdated economic parameters and the lack of a solution regarding the government’s court-ordered IOUs — known as precatórios — the proposal was not enough to tranquilize the markets, which are agitated by what they see as an economy shifting into “election mode.”

“The budget proposal is being received as yet another demonstration of weakness by Mr. Bolsonaro,” says political scientist and Fundação Getúlio Vargas professor Sérgio Praça, speaking to The Brazilian Report.

For next year, the budget proposal established a primary deficit of BRL 49.6 billion (USD 9.5 billion) for the country’s fiscal target, less than the BRL 170.5 billion forecast in April. According to the government, the lower amount can be explained by estimated increases in tax revenue.

Perhaps more pressing is that the budget bill does not include a solution to the BRL 89 billion the government is set to pay in precatórios next year. As things stand, repaying these IOUs would swallow up 90 percent of the administration’s discretionary expenses.

As a result, expenditure on government investment fell to BRL 23.8 billion in 2022, down from the BRL 28.7 billion set aside in this year’s budget. Furthermore, the proposal does not reserve funds for so-called parliamentary grants, which were at the center of a budget imbroglio earlier this year. These grants...

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