OECD ECONOMIC SURVEY OF BRAZIL 2018 Towards a more prosperous and inclusive Brazil BrasÃlia, 28 February 2018 http://www.oecd.org/eco/surveys/economic-survey-brazil.htm
@OECDeconomy @OECD
The economy is recovering
Source: OECD Economic Outlook database. 2
Unemployment is falling
Source: OECD Economic Outlook database. 3
Inflation has come down
Source: CEIC; Central Bank. 4
0 ECU IDN COL THA BRAZIL MEX HRV TUR EST ZAF HUN CHL POL MYS HKG VEN PRT CZE SVK SVN ARG GRC NZL ITA GBR KOR FRA AUS ISL DEU JPN AUT FIN NLD BEL USA DNK NOR SWE CHE SGP
Productivity is low
Labour productivity in thousands of 2010 USD per employee
250
200
150
100
50
Source: World Bank; ILO; IBGE. 5
Well-being can be improved BRAZIL OECD
Life satisfaction
Income and wealth 10
Average of Chile and Mexico
8
Jobs and earnings
6 Safety
Housing
4 2 0
Environment
Work and life balance
Civic engagement
Health Community
Education
Source: OECD calculations based on Better Life Index – Edition 2017 6
More reforms would boost growth Real GDP, Index 2000=100 280 260
Baseline
With more ambitious structural reforms
240 220 200 180 160 140
100
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032
120
Source: OECD projections, OECD Economic Outlook database.
7
Improving fiscal sustainability
8
Fiscal outcomes have deteriorated
Source: Central Bank; Treasury. 9
Reforms would improve debt sustainability Estimated public debt trajectory
Source: OECD calculations 10
Pension reform is urgent
Source: OECD Pension at a Glance 2017 11
The retirement age is low
Source: OECD Pensions at a Glance 2017. 12
Poverty is high among children and youths Poverty rates 35
BRAZIL
OECD
30 25 20 15 10 5 0
0-17 years old
18-25 years old
26-40 years old
41-50 years old
51-65 years old
66-75 years old
above 75
Source: OECD Income Distribution database. 13
There is room to improve public spending Expected possible savings from improving the efficiency of public expenditures
Measure
Social benefit reform (including pensions)
Potential annual savings
Up to 2.7% of GDP
Raising spending efficiency in the health sector
0.3% of GDP
Removing tax deductibility for private health plans
0.3% of GDP
Eliminating inefficiencies in education
1.5% of GDP
Aligning public sector pay levels with private sector
0.9% of GDP
Reforming targeted SME tax regime in the context of a broader tax reform
up to 1.2% of GDP
Scaling back tax expenditures and subsidies targeted at the industrial sector
up to 0.8% of GDP
Improving public procurement TOTAL
0.2% Up to 7.9% of GDP
Source: World Bank staff estimates from World Bank (2017), OECD estimates. 14
Key recommendations Improving macroeconomic policies • Implement the planned fiscal adjustment through permanent spending cuts. • Reform the pension system. • Delink social benefit floors from the minimum wage. • Shift more resources towards transfers that reach the poor (Bolsa Família). • Establish a fixed term for the Central Bank governor and monetary policy committee. • Scale back sector- and location-specific industrial support policies, including tax benefits. • Evaluate existing industrial support programmes. • Improve whistle-blower and leniency procedures. • Limit political appointments, especially in state-owned enterprises.
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Raising investment
16
Investment is low
Source: OECD Economic Outlook database 17
More investment is key to boost growth
Source: OECD Economic Outlook database. 18
Most private savings go into government bonds
Source: Canuto and Cavallari, 2017 based on Anbima. 19
Infrastructure quality is low
Source: World Economic Forum, Global Competitiveness Indicator database 20
Infrastructure investment is low
Source: Infralatam, IDB and ECLAC 21
Infrastructure finance is dominated by public banks
Source: Central Bank 22
Tax compliance costs are high
Source: World Bank. 23
There is room to reduce red tape and regulatory burden Regulatory barriers to entrepreneurship 4
Most restrictive
3.5 3 2.5 2
Less restrictive
1.5 1
0
SVK NZL NLD ITA DNK AUT CAN PRT GBR RUS FIN USA CHE EST POL DEU JPN OECD FRA AUS NOR HUN SWE LUX BEL SVN CZE KOR COL GRC IRL CHL LVA PER ISL ESP ZAF MEX LAT ISR IDN TUR BRAZIL ARG CHN IND
0.5
Source: OECD Product Market Regulation Indicators. 24
More and better professional training could relieve skill shortages
Source: UNESCO Education database. 25
Key recommendations Raising investment • Reduce barriers to entry due to administrative procedures. • Consolidate consumption taxes into one value added tax with a broad base, full refunds for input VAT paid and zero-rating for exports. • Focus BNDES lending activities on niche areas where the private sector finds it difficult to operate. • Use BNDES to arrange syndicated loans for infrastructure and lead the creation of structured financial instruments. • Provide more training to officials involved in infrastructure structuring. • Make wider use of BNDES’ technical capacity to assist public entities in project structuring, especially local governments.
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Fostering Brazil’s integration into the world economy
27
Integration into international trade is low
Source: OECD Economic Outlook database. 28
Brazil sits on the periphery of global value chains Map of global value chains
Note: A larger circle reflects an economy whose sectors are connected within global production networks.
Source: Criscuolo and Timmins (2017). 29
Trade barriers are high
Source: World Integrated Trade Solution database (WITS). 30
Imported capital goods are too expensive
Source: World Integrated Trade Solution database (WITS). 31
Expensive imported inputs hurt competitiveness
Source: Brambilla et al. (2016). 32
Local content rules are used frequently
Source: Stone et al. (2015). 33
Export performance has been weak
Source: OECD Economic Outlook database. 34
Lower-income consumers would benefit most from lower trade barriers Potential gains in purchasing power, by deciles of the income distribution
Source: Arnold et al. (2018) 35
Most sectors will benefit from more openness Estimated responses of value added to changes in trade protection
Sectors that may expand their activity Sectors that may reduce activity
Source: Arnold et al. (2018) 36
Investing in training would improve access to better-paying jobs
Source: OECD Public expenditure and participant stocks on LMP database; ILO; and ILO (2016) "What works. Active labour market policies in Latin America and the Caribbean." 37
Key recommendations Fostering the integration into the world economy
• Lower tariffs and scale back local content requirements. • Bolster training and job search assistance programmes for affected workers.
38
Green growth challenges
39
Deforestation has picked up again Deforestation in the Amazon area (legal definition) km2 30000 25000 20000 15000 10000 5000 0
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
Source: Instituto Nacional de Pesquisas Espaciais 40
Key recommendations Strengthening green growth
Ensure continuous reductions in deforestation, including through: • Stronger enforcement • Maintaining the status of areas currently under environmental protection.
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