MercoPress. South Atlantic News Agency

Brazil US$ 30bn fiscal boost to prop the economy and soften Covid-19 impact

The fiscal boost represents a turnaround for minister Paulo Guedes who, only last weekend, insisted that Brazil could swim against the global tide and grow 2.5%

Brazil’s government on Monday announced emergency measures to inject nearly 150 billion reais (US$ 30 billion) into the economy to soften the blow from the coronavirus pandemic.

The fiscal boost represents a rapid turnaround for Economy Minister Paulo Guedes who, as recently as the weekend, insisted that Brazil could swim against the global tide and grow by as much as 2.5% this year.

The package does not contain new money, but is a range of measures mostly bringing forward social assistance payments, deferring company taxes, and making it easier for people to access workers’ severance funds.

According to the Economy Ministry, 83.4 billion reais will be freed up for the most vulnerable people in society, 59.4 billion reais will help companies keep jobs filled, and 4.5 billion reais will go to directly combating the coronavirus.

Guedes said budget freezes this year were inevitable given the sharp shock to the economy. He also noted a likely 16 billion reais hole in the budget because the privatization of utility Eletrobras may not go ahead as planned.

The fiscal package follows a series of measures announced earlier on Monday by the central bank to increase liquidity and lending in the banking system.

Speaking to reporters after another wild session on global markets, which saw Brazil’s stocks plunge 13% and the currency slide to a new low, Guedes said the hit to the economy from the effects of the coronavirus could be severe and that the government’s growth forecast was being reviewed.

The government has come under pressure to relax its strict fiscal rules to support the economy, which a growing number of economists now say will slip into recession. Guedes insisted that the spending ceiling cap rule will not be changed, but said the budget deficit goal is under review.

Among Monday’s measures, bringing forward the payment of the second installment of the so-called 13th salary for retirees to May from December will put 23 billion reais into their pockets, while a three-month deferral for small and medium-sized firms’ “SIMPLE” corporate taxes will save them 22 billion reais, the Economy Ministry said.

The government also announced a 3.1 billion reais boost to the ‘Bolsa Família’ assistance for some of Brazil’s poorest families that will bring more than 1 million new people in the program.

But that 3.1 billion reais will have to be clawed back from elsewhere, Treasury Secretary Mansueto Almeida said.