Brazil’s emergency spending increases to combat the impact of the COVID-19 pandemic next year must be balanced by spending cuts in other programs to avoid the debt burden becoming unmanageable, Brazil’s deputy economy minister for foreign trade, Roberto Fendt, said on Thursday.
“Brazil’s Constitution says we have to obey a ceiling on expenditures [so] any new cash transfer program would require some current expenditure already scheduled be compressed,” Fendt, officially the Special Secretariat for Foreign Trade and International Affairs, said during LatinFinance’s Brazil Finance & Investment Forum.
Fendt said during the online event that a “backlog” of emergency cash transfer payments from 2020 will be paid in the first quarter of next year and will need to be compensated by cuts in other items in next year’s budget still awaiting approval by Brazil’s Congress.
“It is the key measure to maintain the expenditures under control. If we start breaking the ceiling, then it will be extremely difficult to be able to cope with the increase in total debt, which was the consequence in the emergency program in activity this year,” he said.
Fendt, appointed to the role in May of this year, said the assistance in extra spending because of the pandemic has helped 50 million Brazilians to shore up their incomes. However the public debt as a ratio of gross domestic product will be more than 90% by the end of the year, with Brazil spending more than twice as much as other emerging market economies to counter the economic impact of the pandemic.
“We cannot break the ceiling on the (spending) cap,” he said.
Brazil’s government is coming under increasing pressure to loosen or scrap the constitutionally mandated spending cap in the face of large increases in spending on emergency welfare programs since the outbreak of the coronavirus pandemic earlier in the year.
Brazil’s spending cap rule limits the growth in public spending to the previous year’s rate of inflation. Brazil’s Central Bank expects the country year-end inflation to be 3.25% and below its 4% target.