BNDES study states that the bank’s larger disbursement precedes high investments – 06/26/2023 – Market

A study carried out by the BNDES (National Bank for Economic and Social Development) states that the expansion of the institution’s disbursements precedes the increase in investments in the country, indicating a positive correlation between the bank’s performance and the variable of impulse to economic growth.

The conclusions are registered in the first special study elaborated by the current administration of the BNDES, anticipated to the Sheet. The initiative is part of the bank’s strategy to encourage economic debate on topics that permeate its own operations.

The director of Planning and Structuring of Projects at the BNDES, Nelson Barbosa, says that one of the goals of the document is to deconstruct perceptions that are considered incorrect, such as the idea that there is no connection between disbursements by the development institution and investment.

Since the beginning of Luiz Inácio Lula da Silva’s (PT) government, the BNDES has become a focus of criticism and fears from economists, who view with distrust the goal announced by the bank’s new management of doubling its size by 2026.

The Central Bank itself has issued warnings about the risks associated with an eventual expansion of earmarked credit —which usually has lower rates than those practiced in the market. The president of the BC, Roberto Campos Neto, has already stated that, if the government wants to grant more subsidies, “the interest rate will be higher by definition”, since the transmission channel of the monetary policy “becomes narrower”.

“The Central Bank uses the fear of what we can do in 2024 as a justification for not reducing interest rates today. I think that is a bit too much for any economist. They did not understand what we are proposing”, says Barbosa.

The director claims that the bank intends to focus on areas such as infrastructure, innovation and financing for foreign trade. “If it is well directed, we can enable a new increase in investment in Brazil”, he assesses.

The BNDES study indicates a positive correlation of 76% between the bank’s financing concessions as a proportion of GDP (Gross Domestic Product) and the country’s investment rate, considering operations carried out between 2002 and 2022. The higher the percentage, greater is the strength of association between the two analyzed variables.

As some disbursements are directed to working capital lines or export financing, the study also brings specific clippings, which seek to measure the effect of transactions intended only to carry out investments.

According to the BNDES, the correlation between the disbursements of the Finame line (aimed at the acquisition of machinery and equipment) and the investment rate in this segment is 87%.

The study also measured the correlation with the rate of investment in non-residential construction, which reached 88% in the case of disbursements for infrastructure and 89% in financing for investments in general.

The findings would not, by themselves, be sufficient evidence to conclude that the investments took place because of the BNDES’ actions. Economists use a maxim to portray this: that correlation is not causation.

Therefore, the bank’s technicians conducted some econometric tests to verify whether the bank’s disbursement data helps to predict investment behavior —that is, whether there is in fact precedence between one variable and another.

The test shows no evidence that the increase in investment leads to a greater BNDES disbursement, but significant results when the reverse order is evaluated, with the bank’s concessions preceding the expansion of GFCF (gross formation of fixed capital, such as investments are measured in GDP).

“The evidence shows that the increase in disbursements precedes an increase in investment, and that this increase in investment reaches its peak after one year”, says Barbosa.

“Obviously one can always say that he [crédito] can be better allocated, that it has to be more transparent. Now, this relationship of correlation and causality is known”, he says.

At the end of last year, a report produced by Cmap (Council for Monitoring and Evaluation of Public Policies) showed that the policy of national champions practiced by the BNDES during previous PT governments poured resources into large Brazilian companies, but did not result in increased investments. On the same proportion.

According to the study, for every BRL 1 invested in loans and grants, only BRL 0.12 to BRL 0.25 became additional investments. The value, although positive, was considered ineffective.

Barbosa says he would need to analyze the study’s details and assumptions to understand Cmap’s calculations and evaluate its conclusions, but he claims that the bank itself is interested in developing studies on the effectiveness of its loans.

“We are dialoguing with people from the ministry as well, precisely to better develop these evaluations. There has to be an evaluation of efficiency, effectiveness. But one thing at a time. One, the impact is positive. Now, the impact is very small for the volume of resources? That’s another kind of question. Obviously we want a positive and efficient impact”, he says.

According to the director, the new batch of BNDES studies seeks to contribute to “improving the terms” of the debate and measuring the results to monitor political efficiency and even improve the institution’s performance.

The aim is for these special studies to resemble the boxes published by the Central Bank in the RTI (Quarterly Inflation Report), with assessments and calculations on specific topics.

“Another contribution, more indirect, is to start clarifying some points and, with that, fight some ‘fake news'”, he says. According to him, one of the main distortions is to say that the greater participation of the BNDES in credit expels the private sector from this market (what economists call the “crowding out” effect).

“The evidence shows that this is possible, but not likely. In most cases, when the BNDES disburses more, investment increases, and the private sector also disburses more. They go together. There is more evidence of complementation than of substitution between one and the other”, says Barbosa.

According to him, the risk of the bank taking space from the private sector exists only in specific contexts, when the economy is at full employment (operating at its maximum level) or when there is stagnation or recession. “There you are disputing a fixed size [de investimento]. So, in a context of stagnation, a crowding out can happen. However, our strategy is to increase disbursements in a context of growth. Our increase in disbursements depends on the economy growing again, too”, he says.