Tax rule encourages investment, says World Bank – 04/14/2023 – Market

The commitment of the Luiz Inácio Lula da Silva (PT) government to a new fiscal framework that will reduce spending is “very encouraging” for investments, assesses the director of the World Bank for Brazil, Johannes Zutt, but in the long term it will still be necessary to deepen reforms structural, in his opinion.

The World Bank is expected to offer the Brazilian government about US$2 billion in loans in the next fiscal year, which starts July 1.

The value may still change depending on negotiations with governments and Congress, but, to give you an idea, in the current fiscal year, from July last year to next June, the bank’s investment value in projects in Brazil is US $749.3 million.

In the previous fiscal year from mid-2021 to mid-2022, investment in the country was US$985.41 million. According to the bank, the institution has US$ 3.6 billion committed to investments in the country today.

“We are very encouraged by the fact that the government and Minister Fernando Haddad have focused from the beginning on articulating a realistic fiscal framework and commitment to tax reform, to ensure that revenues and expenditures are properly aligned and the primary balance recovers. “, said Zutt in conversation with journalists this Friday (14) at the headquarters of the International Monetary Fund, in Washington.

“The most important thing is that the fiscal framework has transparency, establishes a realistic and credible trajectory for appropriate fiscal management in the short and medium term and has very clear parameters that allow changes in periods of shock”, he says.

Zutt makes the reservation, however, that the framework alone “does not guarantee that Brazil will have adequate macroeconomic management in the medium to long term”, he says, “because it is necessary to carry out in-depth reforms to guarantee that the money is spent in the right places and maintain continued economic growth that allows spending on social spending as the government wants”.

For this, he argued, it is necessary to increase efficiency in public sector spending, social security and social security programs, in addition to reviewing the “many projects that start, but are not completed”.

Brazil must also work to open up its economy, still very closed, in his assessment, and review trade barriers. While the share of foreign trade in the country’s GDP is around 40%, in countries with a similar income level it reaches 60%, according to him. “As a middle-income country, Brazil can learn a lot by copying technologies and management techniques from high-income countries,” he says.

In the calculation of the World Bank, the country spends between 1.6% and 1.7% of its GDP on infrastructure, but, just to maintain what already exists, it should spend around 3%, he says. “That alone shows that Brazil’s infrastructure is deteriorating, because it doesn’t spend enough to maintain what it already has and it certainly doesn’t spend more to expand it.”

Zutt stated that the business environment in Brazil is affected by global uncertainty and there is a challenge to obtain resources in the private sector all over the world. For him, high interest rates make investment difficult, but are necessary to control inflation, “mainly for the poor who are unable to protect their financial assets from the erosion of inflation”.

One of the focuses of the World Bank is to accelerate the country’s growth focusing on productivity, he said, while the institution forecasts that the GDP will rise only 0.8% this year. “The average for middle-income countries was 4% per year [na última década]. [O Brasil] has been a slow growth performer for a long period of time. This is in part because productivity has remained far below where it should be,” he says.

He also argued that it is necessary to invest in the inclusion of black people, indigenous people, members of traditional communities and women. “They are 75% of the population. If you don’t do everything you can to help them contribute [com a economia]you will again have a level of growth much lower than what Brazil could have.”

The IFC (International Finance Corporation), linked to the World Bank, signed a contract this week to advise the Government of São Paulo in the privatization process of Sabesp, a São Paulo sanitation company. On Friday, Zutt said, while there has been no decision on how that process should go, the bank is “happy to help”.

“Sabesp is a well managed company, which has a very good history of economic and financial responsibility. Seeking options to increase private financing to allow the expansion of its business and provision of services makes a lot of sense”, he defended.