Brazil fiscal and welfare spending demands will clash

Significance

The economy is at a crossroads: high unemployment and increasing poverty are generating pressures for greater income transfers, but the delicate fiscal position is generating concern about long-term fiscal sustainability. Rising inflation has generated temporary fiscal relief, but for the coming years fiscal indicators are expected to worsen.

Impacts

• Conflicting pressures between welfare spending and long-term fiscal equilibrium will worsen in coming months.
• The implementation of ‘populist’ policies for purely political purposes may prove unsustainable.
• Uncertainty about fiscal issues will contribute to deteriorating perceptions about the future of the economy.