This Content Is Only For Subscribers
To unlock this content, subscribe to INTERLIRA Reports.
On Wednesday (16/11), the draft of the “Transition PEC” was sent to the National Congress. The bill proposes that spending on social programs and some investments be withdrawn not only from the spending limit rule – which limits the growth of government expenses to the inflation of the previous year –, but also of the Fiscal Responsibility Law.
The PEC’s Main Proposals
According to the PEC, all expenses with Bolsa Família – currently Auxílio Brasil – will be permanently outside the spending limit. This value is estimated at R$ 175 billion annually. The amount includes the payment of R$ 600 per month and also R$ 150 per child up to 6 years old in the family.
The bill also puts outside the limit expenses with socio-environmental projects or related to climate change funded by donations; expenses of federal universities paid for by their own revenues, such as donations or agreements; and expenditures on investments with the excess collection of current revenue from the previous year.
No Source Defined Yet
The proposal sent to Congress does not say where this resources to the PEC will come from. For the financial market analysts, if these permanent expenses are not offset by an increase in revenue, or a definitive cut in other expenses, there will be an impact on the public debt.
Reaction to the PEC
The market fears high public debt. In reaction, the Brazilian Stock Exchange has been recording a series of negative results for more than a week. On Thursday (17/11), the dollar increased again, reaching R$5,42, and in the last week, Ibovespa, the Brazilian stock market benchmark, fell by 3%, reaching 108.870 points.
In September, according to the Central Bank, the public sector’s gross debt reached 77.1% of GDP, or R$7.3 trillion. The indicator is monitored by risk rating agencies. At this level, the Brazilian debt is still above the average of other emerging countries, which is around 65% of GDP.
According to estimates by experts, with the additional expenses of BRL 175 billion from the Transition PEC, the debt could exceed 90% of GDP in 2026 and 100% of GDP in 2031.
Criticisms have also been made by important political groups, such as the “Centrão”, which claim that the PEC will only be approved for the period of a year. Some members of the parties in the alliance with the Worker’s Party (PT) have criticized the PEC as well. They state that have not been invited to participate in its creation.
Risk of High Interest Rates, Impact on Economic Growth and on Job Creation
Central Bank President Roberto Campos Neto agrees with the need to spend with social programs, but also assessed that the fiscal balance of the government cannot be neglected. Neto argues that more spending generates higher inflation, which forces the BC to increase interest rate policy (raising the Selic rate, or keeping it high for a longer period), with an impact on growth, investments and job creation.
Vice President Tries to Calm the Market
On Wednesday (16/11), newly elected Vice-president Geraldo Alckmin said that the government of president-elect Luiz Inácio Lula da Silva will not be a “spender”, but that it is necessary to guarantee the social protection network. Alckmin made the statement during a press conference in Brasília.
Meanwhile, Lula, who was on a trip to Cop 27, in Egypt, continued to make statements claiming that the focus is the social, and to criticize the spending limit, leading to more instability in the stock market.
Preparing the Ground
Some media sources believe that Lula’s statements have reinforced the perception that the president-elect is “preparing the ground” to dilute the impact of the future Economy Minister, who would be a member of PT, like Fernando Haddad. By doing this move, analysts believe that PT plans to create a great name for the next elections, since Lula wants to retire by the end of this term.
