Pension Reform: A good version approved by the Special Committee and the challenges ahead

BRAZIL ECONOMICS - Report 17 Jun 2019 by Affonso Pastore, Cristina Pinotti, Marcelo Gazzano and Caio Carbone

​Last week the rapporteur of the Pension Reform Proposal presented his opinion to the Special Committee. The version urged in his opinion was somewhat watered down in relation to the government’s original proposal, but it would still lead to significant savings over the next 10 years, of over R$ 800 billion, for the central government. In our view, this was a positive result. However, there are two points that cause concern. First, even if Congress approves the version urged by the rapporteur, it will be hard for the Bolsonaro administration to respect the spending cap. To achieve that objective, the central government will have to cut other expenditures, which is extremely difficult, or even impossible. Second, that version removed the subnational governments from the reform, which has a double effect: the weakening (or even annulling) the pressure that governors can exert on lawmakers from their respective states in favor of approving the reform; and almost certainly leading to an increase of the federal government’s debt, to the extent it is forced to bail out some state governments from their dire fiscal predicament.

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