: MACROECONOMIC MONITOR AND REFORM AGENDA

June 24, 2021 Highlights

• The Constitution and Justice Commission of the House of Representatives approved the proposal for administrative reform that passes to a special commission. • Brazil’s lower house approved a plan to privatize power utility giant , opening the door for the government to raise an estimated R$ 60 billion ($11.9 billion) through a share offering. The government plans to privatize Eletrobras in January 2022. • The government closed an agreement on the tax reform analysis by the Congress. Senators will be responsible for the unification of ICMS and ISS in an IVA and the new Refis. The House of representatives will appreciate the creation of the CBS, with the unification only of PIS/Cofins, and the changes in the IR and IPI.

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THE PRIVATIZATION OF ELETROBRAS GOVERNMENT'S DIGITAL TRANSFORMATION

Source: SPE 2015 2016 2017 2018 2019 2020 2021 GDP (% YoY) -3.55 -3.28 1.32 1.78 1.41 -4.06 5.00 (*) Consumer Inflation IPCA (% YoY) 10.67 6.29 2.95 3.75 4.31 4.52 5.90 (*) Current Account (USD bi) -54.8 -24.5 -22.0 -51.5 -65.0 -24.1 -0.5 (*) Foreign Investment in the Country (USD bi) 64.7 74.3 68.9 78.2 69.2 34.2 58.2 (*) International Reserves (USD bi) 356 365 374 375 357 356 352 (22 Jun) Unemployment rate (%) 8.9 12.0 11.8 11.6 11.0 13.90 14.7 (Mar) General Government Gross Debt (% GDP) 65.5 69.8 73.7 75.3 74.3 88.8 84.5 (**) Ibovespa Index (BRL, % chg.) -13.3 38.9 26.9 15.0 31.6 2.9 11.1 (ytd) CDS 5 years (year average) 475 293 165 208 108 151 181 Interest rate (Selic Target) (%, eop) 14.25 13.75 7.50 6.50 4.50 2.00 6.50 (*) Estimates: (*) Focus Survey, Central of Brazil, Jun. 18, 2021; (**) Prisma Fiscal, May.2021 The economy picks up GROWTH OVER THE SAME QUARTER OF THE PREVIOUS YEAR (%) • GDP expanded 1.2% QoQ SA in 01Q21, above the latest market estimates (+0.9%). GDP is now only -0.03% below 04Q19. Carry-over is at 4.9% for this year.

• The investment rate of 19.4% of GDP was the Source: IBGE Source: IBGE highest since 2014. • All confidence levels improved in April and May, after declining in the 01Q. • Retail and Service sectors advanced in April. There are positive signs for industrial production in May and in the coming months, such as advances in capacity utilization and in Source: FGV car sales. Demand for industrial goods remains Source: IBGE solid and well above pre-pandemic levels.

MARKET WATCH

Sources: BCB, Min. of the Economy, Bloomberg ECONOMY OUTLOOK

Market 1,936 636 421 546 644 81 7.5 Expectations Gross Domestic Product -12 -1,535 -1,327 5.5 (% change in 4Q) 5.3

5.0 Net Job Creation/Destruction 3.5

4.0 (12-mo, thousand people)

1.5 3.0 2.0 1.9 1.3 1.7 1.8 1.6 1.6 1.4 1.4 1.1 1.8 2013 2014 2015 2016 2017 2018 2019 2020 2021 -0.5 (Apr.) -2.1 -2.5 -3.4 -3.8

-4.1 Manufacturing 125 Confidence Indicators (FGV, s.a.) -4.5 115 Consumers 105 -6.5 95 85 75 65 I - 2018 - I 2019 - I 2020 - I 2021 - I 2022 - I II2018 - II2019 - II2020 - II2021 - II2022 - III 2018 - III 2019 - III 2020 - III 2021 - III IV - IV 2017 - IV 2018 - IV 2019 - IV 2020 - IV 2021 55

10.67 Consumer Inflation (%)

6.50 6.41 5.90 5.91 5.84 5.91 6.29 5.90 4.31 4.31 4.52 3.75 2.95

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 IPCA (YoY) Inflation Target Tolerance Interval

Trade Balance (US$ bi, 12-mo.) Ext. Financing Needs (% of GDP, 12-mo.) 250 Int. Reserves (US$ bi eop)

227 220 4.1 4.1 3.6 3.6 3.3 3.7 2.4 2.8 375 375 374 374 373 373 365 365 364 364 359 359 356 356 357 356 356 193 352 352 190 -0.8 -1.4 -1.1 -1.7 Exports -3.1 -2.7 289

160 -4.1 -3.5 239 194 194 Imports 130 Current Account Direct Investment (net) 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

2014 2015 2016 2017 2018 2019 2020 Apr.2021 Jun. 22,2021

Household Debt Service ratio (%, YoY) 3,900 New Credit Operations 600 31.2 3,700 30.7 (12-mo accum., R$ bi) 3,500 500 3,300 28.9 28.5 3,100 Market-based 27.8 400 27.5 27.5 2,900 Earmarked 26.6 2,700 2,500 300

2014 2015 2016 2017 2018 2019 2020 Feb.2021

Nominal Primary

2.2 1.7 -0.6 -1.9 -2.5 -1.7 -1.6 -0.8 -2.3 -3.0 -7.1 -6.0 -5.8 -7.0 -9.4 -7.8 -9.0 Public Sector Fiscal Deficit (% of GDP) -10.2 -10.8 -13.6 2012 2013 2014 2015 2016 2017 2018 2019 2020 Apr.2021

Sources: BCB, Bloomberg Fiscal consolidation and productivity increase are crucial inputs for Brazil to grow strongly and sustainably. The new government is going forward to put in place a set of reforms for speeding up growth and increasing potential output. Priority Agenda for 2021 As of June 22, 2021 Chamber of Deputies Relevance for the country´s Legislation Title What is the main change? Current Situation economy Simplify the tax system by Improvement of the tax system streamlining taxation on the transparency and accessibility and PEC 45/110 Tax reform Ready for Plenary Agenda (PLEN). production and sale of goods and reduction of the cost of red tape on services. taxpayers and economic sectors. Transformation of the Brazilian state Awaiting creation of a Temporary Change provisions on civil servants, with a view to providing more Commission by the Standing Board. PEC 32/2020 Administrative reform public employees and efficiency to the services offered by Aprovado requerimento que requer a administrative organization. the government to citizens. realização de audiência pública no Reduction of public spending by Regulate the wage limit for civil curbing the payment of civil Awaiting creation of a Temporary PL 6,726/2016 Wage ceiling servants referred to in the Federal servants' wages above the Commission by the Standing Board. Constitution. established ceiling. Change the powers of the National Development of the energy matrix Turned into Ordinary Law 14, PL 4,476/2020 Natural Gas Market Framework Energy Policy Council and the via greater capacity to produce and 134/2021. National Petroleum Agency. distribute energy. Encourage the use of debentures to Increase of private participation in raise private funds for infrastructure Aguardando Deliberação no Plenário PL 2,646/2020 Infrastructure debentures financing infrastructure projects in projects in the telecommunications (PLEN) the country. sector. Expansion of the supply of electric Enable the privatization of power generation and transmission Eletrobras, the state-owned Awaiting dispatch by the President of PL 5,877/2019 Privatization of Eletrobras and improve efficiency in resource company responsible for 1/3 of the the Chamber of Representatives. allocation and the energy sector country's electricity production. management. Provide the Central Bank with legal Eliminate the risk of political autonomy and new rules for the interference on the Central Bank, Turned into Complementary Law PLP 19/2019 Central Bank autonomy appointment and dismissal of its giving the monetary policy more 179/2021, of 02/24/2021 directors. credibility and stability. Authorize voluntary deposits from Reduction of the use of repo Awaiting the creation of a Special PL 3,877/2020 Voluntary Deposits financial institutions at the Central operations as a Central Bank tool for Committee by the Standing Board. Bank. currency control. Promotion of financial education to Awaiting Appraisal by the Federal Senate Improve discipline in consumer PL 3,515/2015 Over-indebtedness consumers in addition to healthy (Bill No. 1,805, of 2021 (The Chamber of credit and prevent excessive debt. debt renegotiation measures. Represntatives' replacement to the the Improvement of the business Simplify foreign currency environment by modernizing the operations, favoring competition Foreign Exchange Market Legal foreign exchange market and Federal Senate: com o Senador Carlos PL 5,387/2019 and the supply of services in the Framework favoring foreign investments in Viana - Plenário do Senado Federal foreign exchange market, reducing Brazil and Brazilian investments thereby costs for the user. abroad. Establish conditions for the exploitation of mineral resources, Make the use of these areas more the extraction of hydrocarbons and flexible for economic exploitation, Awaiting creation of a Temporary PLP 191/2020 Mining on indigenous lands the use of water resources for the whether by agribusiness, mining, Committee by Standing Board. generation of electric energy in tourism and water resources. Indigenous Lands with the appropriate compensation. Establish clearer rules for the environmental licensing of federal Planned public works and activities public works, in addition to PL 3,729/2004 Environmental licensing will be implemented quickly, socially At Federal Senate Plenary facilitating and guiding the inclusive and environmentally safe. regulation of the subject in the Brazilian subnational states. Make the bidding process faster, Offers a model of legal timber Awaiting the Report of the Rapporteur at more flexible contracts and production while the forest is PL 5,518/2020 Forest concessions the Committee on the Environment and attractiveness to the business preserved and green jobs are Sustainable Development (CMADS) model of forestry concessions. created. Establish criteria for land tenure Benefits 300 thousand families Awaiting the creation of a Special PL 2,633/2020 Land regularization regularization of federal buildings, installed in federal lands for at least Committee by the Standing Board. including settlements. five years. Fiscal consolidation and productivity increase are crucial inputs for Brazil to grow strongly and sustainably. The new government is going forward to put in place a set of reforms for speeding up growth and increasing potential output. Priority Agenda for 2021

As of June 22, 2021

SENATE Relevance for the country´s Legislation Title What is the main change? Current Situation economy Aim to reduce public expenditures and facilitate the management of Reduction of current expenses in the state budget, adopting emergency situations, in order to measures such as the reduction of allow for compliance with the PEC 186/2019 Emergency PEC civil servants' wages, suspension of Enacted. Processing closed. Expenditure Ceiling and the Golden public exams for public servants and Rule, while making investment the extinction of municipalities possible in other important areas. unable to sustain themselves financially.

Set up a reserve of complementary law to create public funds and Guarantee the Congress and the extinguish those that are not ratified Executive branch more flexibility to Ready for deliberation by the PEC 187/2019 Funds PEC by the end of the second financial allocate money in priority public Plenary. year following the promulgation of policies. this Constitutional Amendment.

Give more autonomy to states and municipalities through the Decentralize, deindex and untie at the CJ - Committee on deployment of resources and their fiscal resources between the three Constitution, Justice and PEC 188/2019 Federative Pact PEC allocations, increasing the spheres of government in Brazil Citizenship. Subject accountability of managers in caring based on a new federative compact. with the Rapporteur. for public accounts. Allow for that during the period of public calamity declared because of Making resources available on a Covid-19 outbreak, the balance of Awaiting the requested additional Use of public funds for the temporary and emergency basis to PLP 137/2020 the financial surplus of 29 sectoral documentation at the Committee pandemic deal with the effects of the funds, can be used to face the on Economic Affairs pandemic. pandemic and its social, economic and financial effects. Allow block auctions under the Implementation of a more suitable concession regime in the pre-salt concession model for the country PL 3,178/2019 Changes in oil sharing regime area where contracting by the Subject with the Raporteur. with a view to contracting new production sharing regime is exploitation areas in the country. mandatory. Introduce changes in the format of Implementation of a more efficient Submitted to the Chamber of energy auctions, in low-voltage electricity sector, with positive Representatives. Awaiting dispatch PLS 232/2016 Electricity sector modernization consumer pricing, in their access to impacts on the entire energy market by the President of the Chamber of the Free Market, among other with positive spillovers to all the Representatives (PL 414/2021). points. stakeholders. Authorize the indirect exploitation by the Federal Union of rail Revitalization and expansion of the transport in infrastructure of private railway infrastructure nationwide, Rail transport in private PLS 261/2018 property, disciplining traffic and contributing to eliminate Report with the Rapporteurship infrastructure transport through this mode and bottlenecks in logistics and lowering seeking to incorporate the best costs in the flow of production. available practices. Increase of the supply and quality of Create the Cabotage Transport transport of cargo. More PL 4,199/2020 BR do Mar (cabotage Law) Stimulus Program - which comprises competition and competitiveness in Report with the Rapporteurship. navigation between Brazilian ports. the sector. Expansion of fleet availability. Promote alternatives for reducing Foster the business environment, bureaucracy and modernizing the increase the supply of capital for innovative business ecosystem in Turned into legal rule with partial investment in the sector, PLP 146/2019 Startups Legal framework the country and regulating the veto. Complementary Law No. 182 encouragement of the bidding and contracting of of 06/01/2021 internationalization of innovative innovation by the public national companies. administration. Establish rules for efficiency in public Implementation of a digital platform PL 7,843/2017 administration, providing for Law 14,129 of 2021 was sanctioned Administrative Efficiency in the government for making Proceeding at maximum computerization and (partially vetoed: see MSG 110 of (Govtec) easier the access of publicly available the Chamber rules for data disclosure and access 2021). data by the public. by the public. Authorize the Federal Union to empower the Subnational governments with the management and operation of highways and Adoption of a fairer model for ports with the purpose of granting charging fees, a system without Toll collection by road stretch Rule generated: Law No. 14,157 of PLC 8/2013 exemption from toll payment to gates where the user only pays for (free flow) 06/01/2021. those who have permanent the distance traveled. Tolls tend to residence or exercise permanent be cheaper for everyone. professional activities in the Municipality where the toll collection sector is located Improvement of access to the land Create instruments in the capital market by making investment in Agricultural Investment Fund market to finance agricultural land possible, by nationals and Legal rule generated: Law No. PL 5,191/2020 (Fiagro) production, instead of resorting to foreigners alike of any size, without 14.130 of 03/29/2021 the Treasury. the effective possession transfer or control of rural properties. PPI Project Portfolio PPI Public-Private Partnerships Source: PPI, www.ppi.gov.br/ppi-english

231 790 170.5

3829 11 8 2 Privatizations 22 8 34 Port terminals 16 123 Port access channel 24 1 Waterway environmental license

3 1 Air force communications 26 17 1 Police communications 1 Vehicle custody facility 16 airports for concession 9

21 13 14

3 7

21 192 1 privatization and 1 15 concession Projects Policies

2021 (129 assets)

Port Terminals (19) Airports-6th round (23) Privatizations (9) • CBTU-MG Subnational (25) 12 public lighting PPPs • • • 4 in Maceió/AL 2 in Vila do • 22 airports in 3 blocks • Eletrobras EMGEA 4 concessions of urban • Nova Lima/MG • • 1 in Fortaleza/CE Conde/PA North, South and Central Block • TRENSURB NUCLEP solid waste: • Toledo (PR) • 1 in Areia Branca • CORREIOS • Barreiras (BA) • 2 in Santos/SP • ABGF • Consortia Convale/MG • • • Crato (CE) • 2 in Paranaguá/PR 4 in Itaqui/MA • 1 airport • CEASAMINAS CODESA • Consortia Comares (CE) • • Valparaízo de • 1 in Santana/AP 1 in Pelotas/RS São Gonçalo do Amarante - Natal (RN) • Teresina/Pl Mining Rights (9): Goiás (GO) • 1 in Suape/PE • Bauru (SP) • Phosphate - Miriri (PB/PE) • Campinas (SP) • Caruaru (PE) Fishery Terminais • Natal (RN) • Copper - Bom Jardim de Goiás (G0) 1 Concession of Urban • Kaolinite - Rio Capim (PA) • Cachoeiro do Highways (6): (8) • Vitória (ES) Solid Waste, Water and • Diamond - Santo Inácio (BA) Itapemirim (ES) • Cananéia (SP) Sewage supply • BR-116/465/101 (SP/RI) - Dutra • Cabedelo (PB) • 2nd Round of ANM available areas • Camaçari (BA) • Aracaju (SE) • • BR-381/262 (MG/ES) • Belém (PA) • 3rd and 6th Rounds of ANM available areas São Simão (GO) • Corumbá (MS) • Santos (SP) • BR-116/493 (RJ/MG) - CRT • Manaus (AM) • Patos de Minas (MG) Regional Development (1) • • Integrated Highways in Paraná 4 Concessions of water Curitiba (PR) • Irecê basin irrigation (BA) • BR-153/080/414 (Go/TO) Parks and Forests • lguaçu (PR) and wastewater • BR-163/230 (MT/PA) (6) • Canela (RS) Urban Mobility (1) • State of • Belo Horizonte (MG) subway line 2 • Lençóis (MA) • São Francisco de • State of Amapá Paula (RS) • City of (RS) Railways (3) • Renovação MRS • Jericoacoara (CE) • Humaitá (AM) Telecommunication (1) • State of • • 5G Ferrogrão Oil and Gas (3) • FIOL (BA) Environmental licenses expected (8) 4 Concessions of • 2 Blocks-Transfer of Rights (Sépia and wastewater services Atapu) • Preliminary licensing of Pedral do Lourenço/PA • Construction licensing of BR-080/MT • City of São Gonçalo do Electric Energy (5) • 17th Round under concession agreement • Construction licensing of BR-158/MT Amarante (RN) • 2 auctions of transmission installation • Preliminary licensing of BR-319/AM/RO • State of Rio Grande do • 1 auction of energy generation (supply • Preliminary licensing of hydropower plants in Sul Defense and Security (2) Castanheira/MT, Tabajara/RO and Telêmaco of isolated system) • COMAER PPP Borba/PR • State of Ceará • 2 auctions of energy A-4 and A-5 • Security Forces Communication PPP • Construction licensing of BR-135/BA/MG • City of Crato (CE) THE LAST PAGE

The Privatization of Eletrobras  Congress approved a plan to privatize power utility giant Eletrobras, opening the door for the government to raise an estimated R$ 60 billion ($11.9 billion) through a share offering. The government plans to privatize Eletrobras in January 2022.  Eletrobras will be privatized through capitalization, reducing the Government's participation from 60% to 45%.-  There will be a limitation of voting by each shareholder or group of shareholders to 10%;-  The Government will have veto power, through a special class of preferential share, the "golden share";-  A new state-owned company to manage Eletronuclear and Itaipu Binacional will be created.  The plan establishes a market reserve for contracting Small Hydroelectric Power Plants (PCHs).  There will be an extension of contracts for plants built through the Incentive Program for Alternative Sources of Electric Energy (Proinfa) for 20 years- contract 8,000 megawatts (MW) of power plants in the Midwest, Northeast, North and Southeast regions through auction for 15 years.  Names for the board of the National Electric System Operator (ONS) will have to be approved by the Senate.  The Government must create a recovery plan for hydroelectric power plant reservoirs within one year.  Government will improve the navigability of the Tietê-Paraná waterway, one of the most important for the flow of agricultural cargo;  There will be the obligation for Eletrobras to structurally reduce energy generation costs in the Amazon, and improve the conditions for navigability of the Madeira River and the River;-  Expansion of the free market. The text provides that from July 2026, all consumers will be able to purchase electricity from any concessionaire, licensee or authorized provider.

THE GOVERNMENT'S DIGITAL TRANSFORMATION

 More than 100 million people registered in the unique gov.br login.  71% of the 134 million people that have access to the internet in the country is already registered in gov.br.  1,266 federal government services have been digitalized since January 2019. During the pandemic (since March / 2020), 692 services have been made digitalized. Some prominent digital services delivered to the population during the pandemic are: Requesting Emergency Aid; Registering a Brazilian with a Canceled Flight Abroad; Apply for Unemployment Insurance for Domestic Employees; Identify Offender Driver in Fines and Contest Federal Highway Police (PRF) Traffic Infraction Notice; Register Collective Work Instruments; Register a person as a Professional for Activities Required by Law; Request a consent to export / import products by express shipment from the National Health Surveillance Agency (Anvisa); Request, change or cancel Operating Authorization or Special Authorization for Health Products; Submit a demand to the Ministry of Agriculture (MAPA) to ensure supply during the fight against the Novel Coronavirus; and Apply for Amateur Fisherman Registration.  Estimated savings from digitalization: more than R$ 2.2 billion per year - R$ 1.7 billion for the public and about R$ 540 million for the government.  Today 67% of the more than 4,200 federal government services are digital.  already integrated with gov.br: Santander, , Bank of the State of / Banrisul, Bradesco, BRB, Caixa and Sicoob (a cooperative financial institution).  13 states and 74 municipalities are already integrated into gov.br.

SECRETARIAT FOR ERIVALDO ALFREDO GOMES Secretary INTERNATIONAL ECONOMIC AFFAIRS CARLOS EDUARDO LAMPERT COSTA Undersecretary for International Markets [email protected] JÔNATHAS DELDUQUE JR. Head of International Financial Markets JOSÉ NELSON BESSA MAIA +55 61 2020-4292 PRISCILLA BELLE OLIVEIRA PINTO