OECD Economic Surveys BRAZIL the COVID-19 Pandemic Has Caused Severe Human Suffering and Triggered a Deep Recession in Brazil
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OECD Economic Surveys Surveys Economic OECD BRAZIL The COVID-19 pandemic has caused severe human suffering and triggered a deep recession in Brazil. Economic policies reacted in a timely and decisive manner to the crisis, supporting millions of Brazilians. But a strong and inclusive recovery from the recession will require long-lasting improvements in economic OECD Economic Surveys policies. Improving fi scal outcomes remains one of Brazil’s principal challenges given a high debt burden, to which the pandemic has added signifi cantly. Public spending will need to become more effi cient, including by building on past progress in the fi ght against corruption and economic crimes. Social protection can be strengthened through a better focus on the most effective policies and benefi ts, which could allow signifi cant BRAZIL reductions in inequality and poverty. Stronger growth will hinge on raising productivity, which has been virtually stagnant for decades. This requires addressing underlying policy challenges, including reducing regulatory burdens, reforming taxes, strengthening judicial effi ciency and fostering a stronger integration into the global economy. Raising productivity implies reallocations and structural changes in the economy, which should be accompanied by well-designed training and education policies. Training with a strong focus on local skill demand can help workers master the transition and seize new opportunities to move into better jobs. Vol ume 2020/14 ume DECEMBER 2020 SPECIAL FEATURES: BOOSTING PRODUCTIVITY; SKILLS POLICIES TO FACILITATE STRUCTURAL ADJUSTMENT BRAZIL PRINT ISBN 978-92-64-76814-7 PDF ISBN 978-92-64-62200-5 2020December C Volume 2020/14 ISSN 0376-6438 N H 2020 SUBSCRIPTION U 9HSTCQE*hgibeh+ A December 2020 (18 ISSUES) L N O V I E R S OECD Economic Surveys: Brazil 2020 N C H U A L N O V I E R S This document, as well as any data and map included herein, are without prejudice to the status of or sovereignty over any territory, to the delimitation of international frontiers and boundaries and to the name of any territory, city or area. The statistical data for Israel are supplied by and under the responsibility of the relevant Israeli authorities. The use of such data by the OECD is without prejudice to the status of the Golan Heights, East Jerusalem and Israeli settlements in the West Bank under the terms of international law. Note by Turkey The information in this document with reference to “Cyprus” relates to the southern part of the Island. There is no single authority representing both Turkish and Greek Cypriot people on the Island. Turkey recognises the Turkish Republic of Northern Cyprus (TRNC). Until a lasting and equitable solution is found within the context of the United Nations, Turkey shall preserve its position concerning the “Cyprus issue”. Note by all the European Union Member States of the OECD and the European Union The Republic of Cyprus is recognised by all members of the United Nations with the exception of Turkey. The information in this document relates to the area under the effective control of the Government of the Republic of Cyprus. Please cite this publication as: OECD (2020), OECD Economic Surveys: Brazil 2020, OECD Publishing, Paris, https://doi.org/10.1787/250240ad-en. ISBN 978-92-64-76814-7 (print) ISBN 978-92-64-62200-5 (pdf) OECD Economic Surveys ISSN 0376-6438 (print) ISSN 1609-7513 (online) OECD Economic Surveys: Brazil ISSN 1995-3763 (print) ISSN 1999-0820 (online) Photo credits: Cover © f11photo/Shutterstock.com. Corrigenda to publications may be found on line at: www.oecd.org/about/publishing/corrigenda.htm. © OECD 2020 The use of this work, whether digital or print, is governed by the Terms and Conditions to be found at http://www.oecd.org/termsandconditions. 3 Table of contents Executive summary 9 1 Key policy insights 14 The strength of the recovery will hinge on economic reforms 18 COVID-19 has plunged the economy back into a long and deep recession 21 Inflation is below target and interest rates have reached a long-time low 28 The fiscal outlook has become much more challenging after COVID-19 30 Further social progress is possible at reasonable fiscal cost 40 Fighting corruption and economic crimes 46 Making economic growth greener and more sustainable 49 References 54 2 Raising productivity through structural reforms 60 Possible sources of low productivity growth 62 How can policies help to strengthen productivity growth? 65 Enhancing domestic competition through reforms on product markets 66 Enhancing foreign competition by fostering the trade integration 71 The structure of financial intermediation is improving 76 Simplifying taxes and reducing compliance costs 78 Addressing infrastructure bottlenecks 80 Improving judicial efficiency 81 References 93 3 Improving skills to harness the benefits of a more open economy 101 Policies can help to make trade work for all 102 Gauging the effects of stronger integration into the global economy 104 Improving professional training policies 116 Improving education policies 121 References 130 Tables Table 1. The economy is in a deep recession 10 Table 1.1. Expected gains from structural reform are substantial 20 Table 1.2. Macroeconomic indicators and projections 23 Table 1.3. Events that could lead to major changes in the outlook 28 Table 1.4. Fiscal impact of recommendations 34 Table 1.5. Past OECD recommendations on macroeconomic policies 40 Table 1.6. Past OECD recommendations on social and labour market policies and education 46 OECD ECONOMIC SURVEYS: BRAZIL 2020 © OECD 2020 4 Table 1.7. Past OECD recommendations on fighting corruption 49 Table 1.8. Past OECD recommendations on green growth 50 Table 1.9. Policy recommendations from this chapter (key recommendations in bold) 52 Table 3.1. Trade liberalisation will require some workers to move to jobs in other sectors 112 Figures Figure 1. Ageing will slow Brazil’s growth potential 10 Figure 2. Gross public debt has shot up 11 Figure 3. Social transfers are not well targeted 11 Figure 4. Poverty and inequality have edged up 11 Figure 5. Product market regulation hampers competition 12 Figure 6. Average tariff rates are high 12 Figure 1.1. After a weak recovery, the economy has plunged into another recession 15 Figure 1.2. Demographics will no longer support economic growth 15 Figure 1.3. Well-being indicators 16 Figure 1.4. Women are facing sizeable wage gaps 17 Figure 1.5. Prosperity gaps across regions are large 17 Figure 1.6. An ambitious structural reform package can lift growth 19 Figure 1.7. COVID-19 has triggered a very deep recession 22 Figure 1.8. Brazil’s main export markets and products 23 Figure 1.9. Intergenerational mobility is low 24 Figure 1.10. External debt is stable and currency reserves are substantial 25 Figure 1.11. Foreign direct investment inflows exceed the current account deficit 25 Figure 1.12. Financial stability indicators have deteriorated at the margin during the pandemic 26 Figure 1.13. Household and corporate debt levels remain moderate 27 Figure 1.14. Inflation has come down 28 Figure 1.15. Monetary authorities have responded by cutting rates 29 Figure 1.16. Monetary policy decisions have closely followed inflation dynamics 29 Figure 1.17. Gross public debt is set to stabilise, but subject to risks 31 Figure 1.18. Public sector tax revenues and expenditures 32 Figure 1.19. The fiscal outlook has become more challenging 33 Figure 1.20. Distribution of monetary transfers by quintiles of the income distribution 35 Figure 1.21. Benefits tied to the minimum wage reach only those above median income 36 Figure 1.22. Poverty rates are relatively high for young people 37 Figure 1.23. Public payroll expenses are high in international comparison 38 Figure 1.24. Subsidies and tax expenditures have risen 39 Figure 1.25. Income inequality and poverty have started to rise again after a long decline 41 Figure 1.26. Labour informality is high and the labour tax wedge is almost at the OECD average 41 Figure 1.27. Job turnover rates are high across most sectors 42 Figure 1.28. Spending on education is relatively high, but outcomes are poor 45 Figure 1.29. Corruption indicators in international comparison 47 Figure 1.30. Budget amendments for parliamentarians have peaked around key voting dates 48 Figure 1.31. Total greenhouse gas emissions have been stable 49 Figure 1.32. Deforestation in the Amazon has picked up after a long decline 51 Figure 2.1. Total factor productivity is contributing less and less to potential growth 61 Figure 2.2. Minimum wages are high 62 Figure 2.3. Job creation has been strong in services, but also in manufacturing sectors 63 Figure 2.4. New market entrants are relatively small 64 Figure 2.5. Net job creation is concentrated among firms aged less than 6 years 65 Figure 2.6. Regulatory barriers to competition and entrepreneurship are high 67 Figure 2.7. Product markets have high barriers to domestic and foreign entry 68 Figure 2.8. Distortions induced by state involvement are high 70 Figure 2.9. The economy has little exposure to foreign trade 72 Figure 2.10. Tariff barriers are high, including for capital goods 72 Figure 2.11. Many sectors are enjoying high levels of protection 73 Figure 2.12. The potential consumer benefits from lower trade barriers are highly progressive 74 Figure 2.13. Financial markets are changing 76 Figure 2.14. Lending spreads remain high 77 OECD ECONOMIC SURVEYS: BRAZIL 2020 © OECD 2020 5 Figure 2.15. Tax compliance is extremely cumbersome 78 Figure 2.16. Infrastructure quality is low 81 Figure 2.17. The time to enforce contracts is high 82 Figure 2.18.