Presentation of the 2018 OECD Economic Survey of Brazil

OECD ECONOMIC SURVEY OF BRAZIL 2018 Towards a more prosperous and inclusive Brazil Brasília, 28 February 2018 http://www.oecd.org/eco/surveys/economic-survey-brazil.htm

@OECDeconomy @OECD

The economy is recovering

Source: OECD Economic Outlook database.

2

Unemployment is falling

Source: OECD Economic Outlook database.

3

Inflation has come down

Source: CEIC; Central Bank.

4

0 ECU IDN COL THA BRAZIL MEX HRV TUR EST ZAF HUN CHL POL MYS HKG VEN PRT CZE SVK SVN ARG GRC NZL ITA GBR KOR FRA AUS ISL DEU JPN AUT FIN NLD BEL USA DNK NOR SWE CHE SGP

Productivity is low

Labour productivity in thousands of 2010 USD per employee

250

200

150

100

50

Source: World Bank; ILO; IBGE. 5

Well-being can be improved BRAZIL OECD

Life satisfaction

Income and wealth 10

Average of Chile and Mexico

8

Jobs and earnings

6 Safety

Housing

4 2 0

Environment

Work and life balance

Civic engagement

Health Community

Education

Source: OECD calculations based on Better Life Index – Edition 2017 6

More reforms would boost growth Real GDP, Index 2000=100 280 260

Baseline

With more ambitious structural reforms

240 220 200 180 160 140

100

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032

120

Source: OECD projections, OECD Economic Outlook database.

7

Improving fiscal sustainability

8

Fiscal outcomes have deteriorated

Source: Central Bank; Treasury.

9

Reforms would improve debt sustainability Estimated public debt trajectory

Source: OECD calculations 10

Pension reform is urgent

Source: OECD Pension at a Glance 2017 11

The retirement age is low

Source: OECD Pensions at a Glance 2017.

12

Poverty is high among children and youths Poverty rates 35

BRAZIL

OECD

30 25 20 15 10 5 0

0-17 years old

18-25 years old

26-40 years old

41-50 years old

51-65 years old

66-75 years old

above 75

Source: OECD Income Distribution database.

13

There is room to improve public spending Expected possible savings from improving the efficiency of public expenditures

Measure

Social benefit reform (including pensions)

Potential annual savings

Up to 2.7% of GDP

Raising spending efficiency in the health sector

0.3% of GDP

Removing tax deductibility for private health plans

0.3% of GDP

Eliminating inefficiencies in education

1.5% of GDP

Aligning public sector pay levels with private sector

0.9% of GDP

Reforming targeted SME tax regime in the context of a broader tax reform

up to 1.2% of GDP

Scaling back tax expenditures and subsidies targeted at the industrial sector

up to 0.8% of GDP

Improving public procurement TOTAL

0.2% Up to 7.9% of GDP

Source: World Bank staff estimates from World Bank (2017), OECD estimates.

14

Key recommendations Improving macroeconomic policies • Implement the planned fiscal adjustment through permanent spending cuts.

• Reform the pension system.

• Delink social benefit floors from the minimum wage.

• Shift more resources towards transfers that reach the poor (Bolsa Família).

• Establish a fixed term for the Central Bank governor and monetary policy committee.

• Scale back sector- and location-specific industrial support policies, including tax benefits.

• Evaluate existing industrial support programmes.

• Improve whistle-blower and leniency procedures.

• Limit political appointments, especially in state-owned enterprises.

15

Raising investment

16

Investment is low

Source: OECD Economic Outlook database 17

More investment is key to boost growth

Source: OECD Economic Outlook database.

18

Most private savings go into government bonds

Source: Canuto and Cavallari, 2017 based on Anbima.

19

Infrastructure quality is low

Source: World Economic Forum, Global Competitiveness Indicator database 20

Infrastructure investment is low

Source: Infralatam, IDB and ECLAC 21

Infrastructure finance is dominated by public banks

Source: Central Bank 22

Tax compliance costs are high

Source: World Bank.

23

There is room to reduce red tape and regulatory burden Regulatory barriers to entrepreneurship 4

Most restrictive

3.5 3 2.5 2

Less restrictive

1.5 1

0

SVK NZL NLD ITA DNK AUT CAN PRT GBR RUS FIN USA CHE EST POL DEU JPN OECD FRA AUS NOR HUN SWE LUX BEL SVN CZE KOR COL GRC IRL CHL LVA PER ISL ESP ZAF MEX LAT ISR IDN TUR BRAZIL ARG CHN IND

0.5

Source: OECD Product Market Regulation Indicators.

24

More and better professional training could relieve skill shortages

Source: UNESCO Education database.

25

Key recommendations Raising investment • Reduce barriers to entry due to administrative procedures.

• Consolidate consumption taxes into one value added tax with a broad base, full refunds for input VAT paid and zero-rating for exports.

• Focus BNDES lending activities on niche areas where the private sector finds it difficult to operate.

• Use BNDES to arrange syndicated loans for infrastructure and lead the creation of structured financial instruments.

• Provide more training to officials involved in infrastructure structuring.

• Make wider use of BNDES’ technical capacity to assist public entities in project structuring, especially local governments.

26

Fostering Brazil’s integration into the world economy

27

Integration into international trade is low

Source: OECD Economic Outlook database.

28

Brazil sits on the periphery of global value chains Map of global value chains

Note: A larger circle reflects an economy whose sectors are connected within global production networks.

Source: Criscuolo and Timmins (2017).

29

Trade barriers are high

Source: World Integrated Trade Solution database (WITS).

30

Imported capital goods are too expensive

Source: World Integrated Trade Solution database (WITS).

31

Expensive imported inputs hurt competitiveness

Source: Brambilla et al. (2016).

32

Local content rules are used frequently

Source: Stone et al. (2015).

33

Export performance has been weak

Source: OECD Economic Outlook database.

34

Lower-income consumers would benefit most from lower trade barriers Potential gains in purchasing power, by deciles of the income distribution

Source: Arnold et al. (2018) 35

Most sectors will benefit from more openness Estimated responses of value added to changes in trade protection

Sectors that may expand their activity Sectors that may reduce activity

Source: Arnold et al. (2018) 36

Investing in training would improve access to better-paying jobs

Source: OECD Public expenditure and participant stocks on LMP database; ILO; and ILO (2016) "What works.

Active labour market policies in Latin America and the Caribbean."

37

Key recommendations Fostering the integration into the world economy

• Lower tariffs and scale back local content requirements. • Bolster training and job search assistance programmes for affected workers.

38

Green growth challenges

39

Deforestation has picked up again Deforestation in the Amazon area (legal definition) km2 30000 25000 20000 15000 10000 5000 0

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

Source: Instituto Nacional de Pesquisas Espaciais 40

Key recommendations Strengthening green growth

Ensure continuous reductions in deforestation, including through: • Stronger enforcement • Maintaining the status of areas currently under environmental protection.

41

For more information Disclaimers: The statistical data for Israel are supplied by and under the responsibility of the relevant Israeli authorities. The use of such data by the OECD is without prejudice to the status of the Golan Heights, East Jerusalem and Israeli settlements in the West Bank under the terms of international law.

This document and any map included herein are without prejudice to the status of or sovereignty over any territory, to the delimitation of international frontiers and boundaries and to the name of any territory, city or area.

http://www.oecd.org/eco/surveys/economic-survey-brazil.htm

Follow us on twitter: OECD Economics OECD

42