Breaking down Brazil’s 2021 Budget

. Sep 01, 2020
2021 budget brazil Photo: Jiw Ingka/Shutterstock

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Today, we break down the government’s budget proposal for 2021. A curious coronavirus case could change how we understand the pandemic. And the battle for Rio de Janeiro.

Amid pandemic, Brazil slashes health budget

Judging by the Economy Ministry’s wishful budget proposal for 2021,

Covid-19 will no longer be an issue in Brazil as of December 31. Not only did the government not factor in a potential extension of the state of public calamity approved by Congress in March, but it also slashed the Health Ministry&#8217;s budget for next year to BRL 136.7 billion (USD 24.9 billion) — even less than the BRL 138.9 billion expected before Covid-19 kicked off. Reporter Natália Scalzaretto breaks the proposal down:</p> <p><strong>Restraints.</strong> The Health Ministry is not the only one to face cuts in 2021, being accompanied by Environment, Infrastructure, and Mines and Energy. On the flip side, other departments — such as Education, Defense, Economy, and Communications — saw their budget rise.</p> <ul><li>In the case of the Economy Ministry, the increase is explained by a bump in payments of pensions and benefits. As we showed in the last <a href="https://brazilian.report/newsletters/brazil-weekly/2020/08/31/justice-oversteps-bounds-in-rio-governor-suspension-case/">Weekly Report</a>, nearly 45 percent of the population is receiving some form of financial assistance from the government.</li><li>The budget for investments in 2021 is slated to be BRL 28.6 billion — 56 percent more than what was expected for 2020.</li></ul> <div class="flourish-embed flourish-scatter" data-src="visualisation/3622423"><script src="https://public.flourish.studio/resources/embed.js"></script></div> <p><strong>Primary deficit.</strong> Next year will be the eighth in a row in which Brazil&#8217;s public accounts remain in the red. The central government’s primary deficit is expected to reach 3 percent of GDP — that is, BRL 233.6 billion.</p> <p><strong>GDP.</strong> The Economy Ministry cut <a href="https://brazilian.report/newsletters/brazil-daily/2020/08/26/what-to-expect-from-brazil-q2-2020-gdp-numbers/">GDP</a> estimates for 2021 from +3.3 to +3.2 percent. That is a conservative approach, below markets&#8217; expectations of 3.5 percent growth.</p> <p><strong>Minimum wage.</strong> The government proposed a 2.1-percent minimum wage raise, to BRL 1,067 (USD 194) — just enough to cover inflation. The previous budgetary draft foresaw a higher value (BRL 1,079). That change reflects a smaller inflation rate, but it is also the result of a cost-cutting approach, as spending BRL 12 less per worker saves the government BRL 4.26 billion, as pensions and benefits are pegged to the minimum wage.</p> <p><strong>No room to spare.</strong> There is only BRL 96 billion left for the administration’s <a href="https://brazilian.report/business/2018/08/02/analyzing-public-spending-brazil/">discretionary expenses</a>, which include stipends for researchers and athletes, G&amp;A expenses, and environmental initiatives. That could increase to BRL 108 billion thanks to congressional budgetary grants — an instrument to give lawmakers a say in public spending — but it remains below the estimated BRL 120 billion minimum to avoid a government shutdown.</p> <div class="flourish-embed flourish-chart" data-src="visualisation/3622094"><script src="https://public.flourish.studio/resources/embed.js"></script></div> <p><strong>Cash transfer.</strong> The budget proposal made no mention of Renda Brasil, the beefed-up version of the Bolsa Família cash-transfer program promised by President Jair Bolsonaro and Economy Minister Paulo Guedes. That has led economists to call Monday&#8217;s announcement a &#8220;mere formality, a long way from the final draft.&#8221; Sources told our Brasília correspondent Débora Álvares that the idea is to keep Renda Brasil off the federal budget, instead increasing the allowance for Bolsa Família, which will subsequently be reformulated.</p> <p><strong>Golden Rule.</strong> The government will need Congress to approve an extra BRL 453-billion credit in 2021 in order to respect the so-called &#8216;golden rule,&#8217; which stipulates that the government cannot create new public debt to pay for mandatory expenses.</p> <p><strong>Bottom line.</strong> The 2021 budget proposal suggests Brazil will be in for a rough year with little wiggle room for spending. Investors may take heart in indications that the country will not see its debt balloon, nor will it breach the public spending cap. Still, many are skeptical about Brazil&#8217;s ability to fund itself — which is forcing the Treasury Department to borrow money for much shorter periods, reducing the average maturity of the country&#8217;s debt profile and raising the need for refinancing on a more regular basis.</p> <div class="flourish-embed flourish-chart" data-src="visualisation/3622087"><script src="https://public.flourish.studio/resources/embed.js"></script></div> <div class="flourish-embed flourish-chart" data-src="visualisation/3621952"><script src="https://public.flourish.studio/resources/embed.js"></script></div> <hr class="wp-block-separator"/> <h2>Five months infected with the coronavirus</h2> <p>There is still plenty we don&#8217;t know about the coronavirus and Covid-19. One pioneer study headed by the Federal University of Rio de Janeiro added to that uncertainty, documenting the case of a woman who remained infected with the virus for 152 days — the longest ever recorded in the world. The woman, identified as &#8220;Patient #3,&#8221; showed mild symptoms for only three weeks, but the virus stayed in her body for five whole months, being able to multiply and contaminate others.</p> <p><strong>Why it matters.</strong> The study could help researchers understand the role of asymptomatic patients in the spread of Covid-19.</p> <p><strong>Research.</strong> The finding is part of a task force that tested over 3,000 people, most of them health workers in Rio de Janeiro. Around 40 percent of people continued to test positive over 14 days after showing symptoms — the period after which the Health Ministry says people can no longer transmit the virus and can leave confinement.</p> <ul><li>The World Health Organization and U.S. Centers for Disease Control and Prevention stipulate an even smaller isolation period of just 10 days, providing patients have been asymptomatic for at least three straight days.</li></ul> <p><strong>Transmission. </strong>Scientists believe that the coronavirus can hide in unknown parts of the body and return to the mouth and nose after time — which would make a patient contagious again.&nbsp;</p> <iframe src="https://open.spotify.com/embed-podcast/episode/6ZZeH86TSqcGeZOmJuf8ah" width="100%" height="232" frameborder="0" allowtransparency="true" allow="encrypted-media"></iframe> <hr class="wp-block-separator"/> <h2>Bolsonaro moves to control Rio</h2> <p>On Friday, Rio de Janeiro Governor Wilson Witzel was <a href="https://brazilian.report/newsletters/brazil-daily/2020/08/28/rio-governor-suspended-in-coronavirus-corruption-probe/">suspended from office</a> for alleged links to a crime ring that embezzled funds from the state&#8217;s coronavirus budget. Lieutenant Governor Cláudio Castro — a low-profile political operator known for being a fervent Catholic — is now in charge on an interim basis. And his first move as governor consisted of sending a political message to Mr. Witzel. On social media, Mr. Castro celebrated his rapprochement with Senator Flávio Bolsonaro — a sworn enemy of the suspended governor.</p> <p><strong>Why it matters.</strong> The state of Rio de Janeiro is close to bankruptcy and whoever is in charge will inevitably require federal aid. But as the Bolsonaros have shown on multiple occasions, their support comes with many strings attached.</p> <ul><li>Later this year, the sitting governor will appoint the heads of the local prosecution office and the Civil Police —&nbsp;institutions that are currently investigating Senator Flávio for allegedly operating a <a href="https://brazilian.report/power/2019/01/18/flavio-bolsonaro-scandal-president/">money-laundering scheme</a>.</li></ul> <p><strong>Legal battle.</strong> The Superior Court of Justice (STJ) will decide tomorrow on whether to <a href="https://brazilian.report/newsletters/brazil-weekly/2020/08/31/justice-oversteps-bounds-in-rio-governor-suspension-case/">confirm Mr. Witzel&#8217;s suspension</a> —&nbsp;and the president&#8217;s office is reportedly working behind the scenes to make sure it will. Meanwhile, however, Mr. Witzel has asked the Supreme Court to step in. Chief Justice Dias Toffoli ordered the STJ to explain the reasons behind its Friday decision.</p> <p><strong>Bottom line.</strong> While there seems to be robust evidence of Mr. Witzel&#8217;s alleged wrongdoings, the way the case has been handled has caused suspicion that the case&#8217;s judges and prosecutors are acting politically.</p> <hr class="wp-block-separator"/> <h2>What else you need to know today</h2> <ul><li><strong>Emergency salary. </strong>Later today, the government is expected to announce the new value for the emergency coronavirus benefit, which currently consists of monthly BRL 600 payments. Economy Minister Paulo Guedes and President Jair Bolsonaro have reportedly agreed upon four installments of BRL 300 —&nbsp;which would give the government time to develop a flagship cash-transfer policy before the end of the year. However, with the benefit reaching <a href="https://brazilian.report/society/2020/06/25/emergency-covid-19-aid-has-been-essential-for-low-income-workers/">65 million people</a>, slashing it by half will not be an easy sell in Congress. Many lawmakers are already saying they will not support the reduction. Regardless, the current terms of the aid come with a <a href="https://brazilian.report/power/2020/08/20/what-happens-when-brazils-coronavirus-emergency-aid-ends/">price tag of BRL 50 billion a month</a> —&nbsp;which the government cannot afford.</li><li><strong>Bolsonaro. </strong>According to CNN Brasil, President Jair Bolsonaro will undergo surgery to remove a small kidney stone in September. His health has been cause for concern since the 2018 campaign, when he suffered a <a href="https://brazilian.report/power/2018/09/06/bolsonaro-stabbed-rally/">life-threatening stab wound in the abdomen</a>. In July, he <a href="https://brazilian.report/podcast/2020/07/08/explaining-brazil-podcast-bolsonaro-is-one-in-a-1-6-million/">tested positive for Covid-19</a>.</li><li><strong>Trade.</strong> In another gesture to please the U.S., Foreign Minister Ernesto Araújo has lobbied for a 90-day renewal of Brazil&#8217;s tax-free quota for foreign ethanol. According to newspaper Folha de S.Paulo, the president has been convinced to go along with the change —&nbsp;without it, all U.S. ethanol sold to Brazil would be taxed.</li><li><strong>São Paulo.</strong> Brazil&#8217;s largest city already has 17 pre-candidates for its mayoral election scheduled for November. A <a href="https://www.gazetadopovo.com.br/eleicoes/2020/pesquisa-eleitoral/prefeitura-sao-paulo-sp-ago-2020/">survey</a> published on Monday places incumbent Mayor Bruno Covas and lawmaker Celso Russomano — who will be running for City Hall for the third time in a row — lead the race with voting intentions of around 20 to 24 percent, depending on the list of candidates voters are presented with.

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