Budget woes leave Brazil unable to make investments entering 2021

. Dec 17, 2020
budget woes brazil Senate floor already on vacation mode. Photo: Jefferson Rudy/Agência Senado

In a perfect world, governments finalize their budgetary priorities for the following year around July, allowing ample time for the actual budget to be drafted and approved. But the realm of Brazilian politics rarely coincides with the perfect world, especially during the presidency of Jair Bolsonaro, whose time in charge has been defined by his catastrophic relationship with Congress. And in 2020, the so-called Budgetary Directives Law (LDO) was passed by lawmakers on Wednesday, just days before Congress packs up and goes home for the end of the year. 

Approving the measure guarantees that Brazil will avoid a government shutdown in January — but the country will enter 2021 with serious spending constraints and doubts over its solvency.

</p> <p>The LDO is just step one in the process of passing a federal budget. Having it in the bag will allow the government to spend one-twelfth of its 2020 budget every month, until approving a plan for 2021. But until next year&#8217;s actual financial blueprint passes, the government will be unable to make any new investments.&nbsp;</p> <p>There is never a good moment for such a situation, but going into 2021 without a finalized budget is a particularly daunting prospect. The government will have to carry out a <a href="">massive vaccination program</a> against Covid-19, as well as coming up with <a href="">welfare programs</a> to avoid a new poverty crisis.</p> <p>Here&#8217;s what you need to know about the LDO and the clues it gives us about Brazil&#8217;s 2021 budget:</p> <h2>Primary deficit</h2> <p>The Brazilian government has not recorded a primary surplus since 2013 — and this shameful run will continue. Economy Minister Paulo Guedes has established a BRL 237.1-billion (USD 46.7 billion) deficit target for next year, and Treasury Secretary Bruno Funchal declared in October that Brazil will only be able to record a surplus in 2026 or 2027.</p> <p>Initially, Mr. Guedes <a href="">expressed his desire</a> for a “flexible” primary deficit goal in 2021. Essentially, he wanted to be able to change the deficit targets as the government updated its revenue estimates. But the Federal Accounts Court clipped his wings and warned that such a maneuver would be an infringement of fiscal responsibility laws — and would expose Jair Bolsonaro to the risk of impeachment.</p> <h2>Minimum wage</h2> <p>The government established a <a href="">minimum monthly wage</a> of BRL 1,088 (USD 214.62), including no real gains above inflation. This figure may be revised via a decree in January, once December&#8217;s official inflation rate is made clear. If prices go up at a higher pace than initially forecast, the government is likely to increase its minimum wage proposal.</p> <p>Discussions over the minimum wage are extremely important in Brazil, as it also establishes the salary floor for social security pensions in the country.</p> <h2>Infrastructure projects</h2> <p>The LDO includes a budget for a new housing project Mr. Bolsonaro seeks to launch as part of his strategy to solidify support among lower-income voters. The initiative will reach municipalities of up to 50,000 residents and is labeled as a priority for 2021.</p> <h2>Pandering to lawmakers</h2> <p>As a way to prevent the executive branch from holding a monopoly over the federal budget, Brazilian lawmakers get their say in public spending by way of parliamentary grants. Representatives may allocate parts of the budget to projects of their interest — usually infrastructure or healthcare ventures in their constituencies. First, the amendments must be approved by Congress. After that, the executive branch must authorize the release of funds, and it holds all the cards on when to do so.</p> <p>Inevitably, these amendments become bargaining chips for governments when trying to <a href="">pass legislation</a>. And Mr. Bolsonaro will use them in 2021 to solidify his nascent coalition ahead of the 2022 election.</p> <p>The government increased the percentage of current net revenue made available for grants from 0.8 to 1 percent —&nbsp;halving the deadlines for the government to release funds to 45 days.</p> <p>Indeed, there is a long way to go before the 2021 budget is formally approved. In Congress, the first item on the agenda for next year is a heated leadership election, set to be followed by similar squabbles over the ownership and composition of permanent congressional committees. Only once that is out of the way can the real work toward a 2021 budget begin.

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Débora Álvares

Débora Álvares has worked as a political reporter for newspapers Folha de S.Paulo, O Estado de S.Paulo, Globo News, HuffPost, among others. She specializes in reporting on Brasilia, working behind-the-scenes coverage at the Executive, Legislative, and Judiciary branches of government.

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