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Brazil faces critical moment to put economy back on track

 

4/11/15-Brazil has made remarkable social and economic progress in the past two decades, but must now overcome important challenges if it is to put its economy on a stronger, fairer, greener growth trajectory, according to two new reports from the OECD.

 

OECD Secretary-General Ángel Gurría presented the Economic Survey of Brazil and the Environmental Performance Review of Brazil in Brasilia during meetings with Brazil’s Finance Minister Joaquim Levy and Environment Minister Izabella Teixeira. This follows the launch on 3 November of the new OECD-Brazil Programme of Work, which seeks to further strengthen cooperation in various policy areas.

 

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The Economic Survey says that Brazil is at a critical moment, as the fiscal situation is challenging, inflation is high and previous tailwinds from high commodity prices are fading. All of this is putting pressure on the wider economy, which is projected to contract by 3.1% this year and a further 1.2% in 2016. The Survey recommends Brazil move ahead with the planned fiscal adjustment, which will be critical for strengthening public finances, restoring market confidence and preparing for intense population ageing.

 

Brazil will also need to rein in the expansion of public expenditures, notably by making public spending more effective and reforming the pension system. Improved targeting of social benefits - spending more on the poor, and less on benefits for those who have successfully joined the middle class - could simultaneously reduce inequality while strengthening the public finances.

“Macroeconomic stability has been a crucial factor behind Brazil’s success in the past,” Mr Gurría said, but he warned: “Progress must continue on the fiscal and monetary fronts. Ambitious structural reforms are urgently needed to close the productivity gaps with other leading emerging economies while ensuring all Brazilians can share the fruits of prosperity.” (read the speech in full)

 

Raising productivity will be essential for Brazil’s future economic growth, particularly in the industrial sector, which still has significant unexploited potential. Reforms to the fragmented indirect tax system, better infrastructure, increased competition and stronger integration into international trade are essential both to raise productivity and improve the incentives to innovate. Ambitious structural reform to reduce the so-called ‘Brazil cost’ is urgently needed to unleash the full potential of the economy. 

 

One chapter of the Survey commends progress in health care, but points out that inequalities in access and waiting times for some medical services remain. To further reduce these bottlenecks, Brazil will need to expand capacity, train more doctors and nurses and improve the efficiency of health spending. The current governance structure of the health system is complex, and more could be done to collect performance indicators, evaluate progress and improve coordination mechanisms.

 

Environmental Review highlights extensive progress, continuing pressures

 

The OECD’s first-ever Environmental Performance Review of Brazil draws attention to the strong progress made in reducing deforestation and emissions of greenhouse gases over the past 15 years. It also points out, however, that a decade of rapid urbanisation and economic growth have increased pressure on the environment, with severe water shortages in the southeast, soil contamination from inadequate wastewater treatment and rising air pollution. More people now have access to clean water, sanitation and waste management services, but regional disparities are large.  

 

“Brazil has made tremendous progress in terms of its environmental performance, but rigorous policy implementation remains critically important,” Mr Gurría said. “Greening the economy can also bring huge social and economic opportunities, with green markets offering potential to boost GDP by up to 7 percent.” (read the speech in full)

 

The high share of hydropower and biofuels in the Brazilian energy mix helps keep the economy’s carbon intensity low; to that end, greenhouse gas emissions have dropped by more than 40% since 2000, thanks to the decline in deforestation, but emissions from industry and transport are nonetheless rising.

 

The Review recommends Brazil do more to link environmental priorities with economic policies so as to ensure the sustainable use of its environmental resources. Brazil should strengthen implementation and enforcement capacity at local level to reduce the gap between ambitious environmental goals and policies actually implemented in areas such as public transport and waste management.

 

The Review also recommended that Brazil:

  • Adjust energy taxes to reflect the carbon content of fuels and introduce taxes on pollution, waste and use of natural resources.
  • Further streamline environmental licensing procedures and build administrative capacity.
  • Explore opportunities for eco-tourism in its vast protected area network.
  • Develop a framework law for payments for ecosystem services and better monitor their effectiveness.
  • Develop a uniform system for collecting and managing environmental data.

 

An Overview of the Economic Survey, with the main conclusions, is freely accessible on the OECD’s web site at: www.oecd.org/brazil/economic-survey-brazil.htm.

An Overview of the Environmental Performance Review, with the main conclusions, is freely accessible on the OECD’s web site at: www.oecd.org/brazil/oecd-environmental-performance-reviews-brazil-2015-9789264240094-en.htm

You are invited to include these Internet links in media reports. For further information, contact Lawrence Speer (+33 6 0149 6891) or the OECD Media Office (+33 1 45 24 9700).

 

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