The fiscal adjustment will be the biggest economic challenge for the new government of Lula da Silva in Brazil.

The biggest challenge for the Brazilian government, led by President Luiz Inácio Lula da Silva, who will take office on January 1, 2023, will be fiscal adjustment, according to experts consulted by Lusa.

“The main task for 2023 is the development of policies and rules that signal the control over public debt. This point is very important because at the moment the Brazilian economy is operating with interest rates above this neutral level, a level that allows the economy to grow in line with its potential. In Brazil, the interest rate is high to control the inflationary situation, and this interest rate can remain high depending on the solution that this elected government proposes to solve the fiscal problem,” explained Rafael Cortés, political scientist and partner at Tendências Consultoria, referring to the base interest rate. Brazil’s rate. the rate is currently 13.75%, which is the second highest nominal interest rate among the 20 largest economies in the world.

“The main task is to avoid an even stronger slowdown, waiting is a slowdown [da economia brasileira] for 2023 due to monetary tightening is the introduction of a new tax rule and a set of decisions that signal that debt control will be brought under control. This seems to me the main challenge that the Government will have to face in 2023,” he added.

Nelson Marconi, an economist and professor at the Getúlio Vargas (FGV) Foundation, also believes that the solutions proposed by Brazil’s future government to tackle financial problems will be a major challenge for Lula da Silva’s economic team in 2023, when the progressive leader takes over his third presidency. term in the country.

“In that first moment the most important measures are related to the fiscal issue. It is indeed important for the government to implement tax reform and a new fiscal regime so that it can restore its ability to finance social programs and public investment policies without putting heavy pressure on public debt in the medium to long term. Fiscal reform and taxation can also create a horizon, a stable trajectory for public debt in the medium to long term,” he mused.

“This is still a year of adjustments, tax reform and fiscal reform.. Therefore, we should not have such a significant economic growth in the first year. It could be very similar to what happened this year [2022] (…) It should be another year of adjustment, also because of the world scenario,” added Marconi.

Cortés and Marconi believe that the new Brazilian government has not yet given clear signals about what its strategies will be to deal with the financial problems of a country that has consistently accumulated deficits and alarming deterioration in public accounts Since 2013.

In 2016, the South American country adopted a strict budget rule that set a spending limit which does not allow government spending to be increased, but only to correct inflation registered in the previous year, to control domestic debt, but this rule has not been observed since 2019 and should be replaced next year.

Marconi recalled that the global economy in 2023 will be affected by the spread of Covid-19 in China and global inflation, problems that will have an adverse impact on Brazil.

“Given the global situation, more than ever, local investment and especially [o investimento] in infrastructure, in energy, for example, these will be opportunities that we cannot miss, but for this The government needs to structure the tax issue, fiscal and an adequate program of public-private partnership concessions. This will be more important than ever, because the world stage will not help us much, ”he appreciated.

Cortes also pointed out that there is a scenario economic downturn in the world and even in the most ambitious, most optimistic forecast for the Brazilian economy in 2023, there is an estimate that it will grow less than in 2022 due to the tightening of monetary policy at the domestic and international levels.

International Monetary Fund (IMF) expectations for the global economy have increased from 3.2% this year to 2.7% in 2023.

Forecasts by Brazilian financial market experts consulted by the Central Bank last week indicated that the country’s domestic product (GDP) would rise by 3.04% in 2022 and by 0.79% in 2023.

“I think a low-growth scenario for Brazil is possible, but 2023 will indeed be a year of transition. The post-pandemic Brazilian economy was one that grew in part due to inactivity. The pandemic has created a lot of idleness. Brazil has grown by overcoming this inaction and has grown by stimulating demand,” said partner Tendências Consultoria.

Cortés added that the Brazilian economy needs to move in the direction of reconstruction and that 2023 will be the year when “fiscal policy will be the main sign of this reconstruction (…) why monetary policy will respond to these shortcomings in terms of budget.”

Professor FGV stressed that Brazil also needs to approve adequate tax reform to restore the ability to invest and contain the global and local economic slowdown.

“Tax reform is needed in this process, both to ease the private sector and to change the balance between taxing the manufacturing sector and income (…) I don’t think this will be a year of strong economic growth. [do Brasil]. This is a year of adjustments, fiscal and tax reform, and we shouldn’t have that much growth in the first year. [do Governo Lula da Silva]” Marconi concluded.