Explaining Brazil #175: An obituary for Brazil’s spending cap

Brazil's government is about to obliterate the federal spending cap. One economist believes it is now time for damage limitation, at best

Since being implemented in 2016, Brazil’s public spending cap gathered some criticism from those claiming that it institutionalized austerity in the country, but the financial markets consider it one of the best tools to make the national debt more predictable and avoid massive selloffs. 

But there’s an election coming up, and President Jair Bolsonaro needs something to boost his waning popularity figures. His solution appears to be a new cash transfer program, which will increase and expand the world-renowned Bolsa Família scheme.

The problem? There’s no room for it on the budget, and part of its funding will come from outside Brazil’s federal spending ceiling — which sends all the wrong messages about the government’s commitment to fiscal responsibility. 

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  • Luciano Sobral is the chief economist at Neo Investimentos, an independent Brazilian asset management company based in São Paulo. He is also a columnist for The Brazilian Report.

This episode used music from Uppbeat. License code: TZ2EPEW7EXWLNQSY.

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