Today marks the deadline for Brazil to submit its 2021 budget proposal to Congress, as the government seeks to ready its finances for a daunting recovery in the wake of COVID-19.
President Jair Bolsonaro’s administration is expected to submit a bill in compliance with the constitutional spending cap—the bedrock of Brazilian fiscal policy that limits federal expenditure to the previous year’s inflation rate—to sustain government credibility, shore up investor confidence and exert a downward pressure on lending rates. However, the 2021 fiscal ceiling—which exceeds the 2020 budget by a mere $5.8 billion—is reportedly set to be shattered in 2021 given the current economic trajectory, which is set to produce the biggest slump in Brazilian history.
Economists claim that the unprecedented circumstances warrant an adjustment of next year’s spending cap, without which a catastrophic collapse in public finances is extremely likely. The short-term will likely produce temporary exemptions for select sectors, as well as a heated debate over budgetary allocations as lawmakers balance fiscal discipline with public demand for additional aid. Despite the sustained threat of COVID-19, Bolsonaro is reportedly set to slash the Ministry of Health’s budget to $25.6 billion—a figure well below the portfolio’s current spending limit—while boosting exemptions for the domestic telecommunications and internet-of-things (IoT) ecosystems.
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