Target opportunities in areas that saw budget expansion
MNCs should monitor budget performance closely to anticipate potential fiscal corrections that might soften B2G demand. Firms should continue to target opportunities in ministries that saw discretionary budgetary expansion, such as the Ministry of Infrastructure and Regional Development, as these will be priority areas in 2022. In addition, be sure that local teams are actively lobbying interests in Congress ahead of the 2022 elections, as expansionary spending is expected to persist into 2023.
Overview
After weeks of negotiations, the Chamber of Deputies and the Senate approved Brazil’s national budget, with 357 to 97 votes in the lower house, and 51 to 20 votes in the upper house. The approved version of the budget plans for BRL 4.82 trillion in public spending (relative to BRL 4.32 trillion in 2021), of which BRL 1.88 trillion will go toward servicing public debt. Additionally, the budget is based on predictions of 2.1% growth in 2022 and 4.7% inflation, which differs from the market consensus of 1.2% growth and 4.9% inflation. The monthly minimum wage is set at BRL 1,210, up from BRL 1,100 this year, an adjustment that will not represent an increase in real terms. The budget also allocates BRL 89 billion to Auxílio Brasil, a new social program created after the approval of a constitutional reform known as “PEC dos precatórios” freed up fiscal space. Specific to Brazil’s 2022 budget was the approval of a BRL 4.9 billion electoral fund to be distributed among parties to finance electoral campaigns. Although the approved figure is less than the BRL 5.7 billion Congress had approved in the law on budgetary guidelines earlier this year, it represents a real-term increase of BRL 3 billion vis-à-vis 2018.
Our View
The approval of an expansionary 2022 budget signals that fiscal policy will attempt to support growth in 2022, primarily through greater social spending. Not only did Brazil’s budget see the approval of Auxílio Brazil, but it also developed new programs, such as Vale-Gas, a BRL 1.9 billion program that will help low-income families pay for half of the price of cooking gas. However, an overly optimistic revenue forecast based on a projected 2.1% YOY economic growth continues to cast doubt on the fiscal sustainability of public expenditures in 2022. When looking at discretionary spending, the Ministry of Finance saw the most funds cut in Brazil’s 2022 budget. In contrast, ministries allied with Congress or with actions that benefit electoral strongholds—such as Citizenship (whose spending was boosted by Auxílio Brazil), Regional Development (which manages the electoral fund), and Infrastructure—had marginal increases or cuts.
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