The Disastrous Loosening of Fiscal Policy

BRAZIL ECONOMICS - Report 27 Jul 2015 by Affonso Pastore, Cristina Pinotti and Marcelo Gazzano

Last week, the finance and planning ministers announced that the primary surplus target for 2015 has been reduced from 1.1% to 0.15% of GDP. The targets for 2016 and 2017, which were previously set at at least 2% of GDP, have also been lowered, to 0.7% and 1.3% of GDP, respectively. None of these targets, and not even the surplus of 2% of GDP intended for 2018, are compatible with the objective of reducing the gross public debt in relation to GDP, which will continue rising, rapidly approaching 70% of GDP. The government has simply abandoned any attempt at a meaningful fiscal adjustment, and is now one step away from losing the country’s investment grade rating.

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