Between 2013 and 2014, Brazil experienced progress socially and economically, with a significant decline in inequality and over 29 million of the population leaving poverty. There was a 7.1 percent increase in the earnings of the poorest 40 percent of the population within that period, compared to a 4.4 percent increase for the entire population.
Since 2015 however, there has been a stagnation in the pace of inequality and poverty.
With an economic score of 51.9, Brazil ranks 150 in the economy in the 2019 index. It has experienced a 0.5 point in the score, with growth in the labor freedom and spending by the government outpacing declines in the effectiveness of the judiciary and integrity of the government.
The over-centralized and bloated federal government in Brazil has been hindering economic freedom for many years.
The new government is likely to lower the barrier to foreign investors, make efforts to revitalize the customs sector and be more open to free-market alliance. It is likely for Brazil to pass the pension reforms this year, to reduce the growth of government spending, reduce the pressures of inflation, and maintain debt sustainability. Inflation and lower interest rates will help the recovery plan.
With recent events, this country is passing through a very bad economy. The growth rate has slowed down since the start of the decade. The economic situation was due to the lower price of commodities and also the limited ability of the country to perform reformation activities at all governmental organizations, thereby undermining the confidence of the consumers and investors. From 2017, there was a gradual recovery in the economic activity, with a GDP growth rate of 1.1 percent.
The Way Forward
The greatest challenge for Brazil is the restoration of fiscal sustainability. To tackle this, there has been a Constitutional Amendment, which will limit the increase of expenditure. This policy imposes an adjustment of 5 percent GDP through the year 2024 and brings stability to the debt at 89 percent GDP in 2026.
To implement this fiscal policy, there has to be a reduction in spending and revenue earning mechanisms, which will make over 90 percent of the government’s spending compulsory. A detailed social security reformation will also be needed to lower the projected rise in pension deficit. This great fiscal imbalance will also affect sub-national governments, who without reforms will have the capacity to handle rise in pension payments and wages.
There also needs to be an acceleration in infrastructure development and productivity in Brazil. Since the mid-1990s, there has only been an increase of 0.7 percent of Brazilians average income. The productivity problem is due to an absence of enjoyable business environment, fluctuations brought about by fragmentation of the market, any support programs for organizations that have not yet yielded results, a relative market that is not friendly for foreign investors, and very minimal domestic competition. While reaching the end of the transition, acceleration the growth of productivity remains the top priority of the country.
Better infrastructural investments will be needed to ensure the maintenance of current infrastructure, by getting rid of bottlenecks and growing general services. Doing this will require the government improving its planning capacity, making a better regulatory framework and making the most of private resources to pay for investments.