BRAZIL: 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 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. • 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. THE LAST PAGE 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 Bank 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 I - 2018 I - 2019 I - 2020 I - 2021 I - 2022 II - II 2018 - II 2019 - II 2020 - II 2021 - II 2022 III- 2018 III- 2019 III- 2020 III- 2021 IV - 2017IV - 2018IV - 2019IV - 2020IV - 2021IV - 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 2.8 375 374 373 365 364 359 356 357 356 193 352 352 190 -0.8 -1.4 -1.1 -1.7 Exports -3.1 -2.7 289 160 -4.1 -3.5 239 194 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 22, Jun. 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.
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