What is the necessary fiscal effort: Brazil in relation to the world
The objective of this Special Report is to compare Brazil’s behavior in relation to the large majority of countries in a particular field of fiscal policy execution, that of “fiscal effort”, defined as the variation in the primary result necessary to stabilize the public debt in relation to GDP.
Based on the hypotheses expressed in the text, we constructed a measure of the fiscal effort for 37 countries besides Brazil, whose results are depicted in a graph. Not only is the fiscal effort measure of Brazil large in comparison with the great majority of these other countries, since 2010 it has been growing, while most of other countries have been headed in the opposite direction.
The background for this comparison is what has been happening in the international financial market since 2015. Despite the monetary normalization under way in the United States, the world continues to be marked by very low interest rates in the mature economies, alongside extremely low risk aversion levels. Under these circumstances, international investors are avidly seeking higher yields, prompting them to buy assets of emerging countries, strengthening those nations’ currencies and lowering their CDS quotations.
We do not foresee any abrupt alteration of this picture, but we must point out that economic cycles have not been banished from the face of the Earth, and sooner or later the international scenario will shift. In other words, the window of opportunity that is allowing Brazil to attain less costly fiscal consolidation will tend to close.
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