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Central Bank Highlights That A Public Spending Restraint Policy Can Be A Driver Of Economic Growth In Brazil. The Strategy Defended By Copom Proposes A Structural Reduction Of Expenses To Alleviate Interest Rates And Encourage Long-Term Development. Resistance, However, Persists Among Political Areas Of The Government.
It is possible that a change in public spending behavior could boost Brazilian economic growth more effectively than other isolated measures.
With permanent spending cuts, Brazil would have more capacity to encourage an expansionary economic scenario. This is what the Central Bank (BC) signals in its most recent report from the Monetary Policy Committee (Copom), suggesting that fiscal control could benefit the country in the coming years.
The BC emphasizes that the structural restraint of expenses could have positive effects on country risk, financial conditions, and resource allocation, decisively influencing the pace of the economy.
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This topic is particularly relevant, as the federal government is internally discussing how to proceed regarding public spending, a subject that generates debates among ministries and meets resistance from political factions and sectors linked to social programs.
How The BC Justifies Spending Restraint
The Central Bank’s analysis is part of the minutes from the last Copom meeting, held on September 6. In this meeting, the committee decided to increase the Selic rate to 11.25% per year – the second consecutive adjustment.
According to Copom, the reduction of spending can alleviate bank interest rates, which would expand the credit available for consumption and business investments.
As a result, productive sectors would have greater access to financing, a factor that could contribute to economic expansion in the medium term.
For the Central Bank, economic growth would occur due to the reduction of pressure on public indebtedness and improvements in financial conditions, risk premiums, and resource allocation.
The agency’s conclusion is that, with more controlled spending, the country could avoid additional highs in the Selic, giving a boost to growth.
Fiscal Policy And Combating Inflation
Another point raised in the Copom minutes is the relationship between public spending and inflation. According to the Central Bank, the increase in spending exerts inflationary pressure alongside a scenario of heated economic activity and a dynamic labor market.
Copom argues that, to effectively combat inflation, the government needs to adopt a predictable and transparent fiscal policy, reinforcing the commitment to fiscal targets.
“Compliance with the fiscal framework and surplus rules are important elements to anchor inflation expectations,” highlighted Copom.
This control of public accounts, conducted by the Ministry of Finance and the Ministry of Planning, seeks to avoid fiscal irresponsibility and excessive growth of public debt – which could require new increases in interest rates.
Indebtedness And High Interest Rates In Brazil
The president of the BC, Roberto Campos Neto, who will leave office at the end of 2024, has already highlighted that Brazil’s high level of indebtedness is one of the factors influencing interest rates.
Campos Neto states that Brazil’s high indebtedness, compared to other emerging economies, contributes to making the cost of credit higher.
As he explained, this situation means that the BC needs to adopt a more restrictive interest rate policy to control inflation and keep the financial market stable.
Decisions About The Selic And The Impact On The Economy
Decisions regarding the Selic rate, influenced by projections of future inflation, reflect the Central Bank’s role in anticipating economic trends.
This anticipated effect is necessary because changes in the Selic take six to 18 months to fully impact the economy.
The inflation target set for 2024 is 3%, and the BC is keeping an eye on compliance with this rate for the coming years. Recent market estimates, according to the Portal G1, project that inflation in 2024 will reach 4.62% – a rate above the central target.
From 2025 onwards, the 3% target remains, with a tolerance of 1.5 percentage points up or down, allowing for a variation of 1.5% to 4.5% without noncompliance.
Challenging Scenario In The Short Term
According to the Central Bank, the inflationary scenario for the coming months presents additional challenges. The prolonged drought affecting food prices and the appreciation of the dollar are some of the factors consistently pressuring inflation.
The BC also observes that inflation in services, the sector with the highest inflationary inertia, remains above ideal. This reality, coupled with the heated pace of economic activity, makes it even more difficult to achieve the inflation target.
International Uncertainties
Copom also pointed out that the international scenario remains unstable. The U.S. economy, for example, still faces uncertainties regarding the slowdown and the pace of disinflation, which influences global monetary policy and affects Brazil.
If the Federal Reserve decides to keep interest rates high in the U.S., the dollar tends to appreciate against the real, negatively impacting inflation control in Brazil.
The appreciation of the dollar in the Brazilian market, the volatility of the stock market, and the increase in risk premiums reflect these uncertainties.
Thus, the Central Bank remains attentive to the pace of domestic economic activity and international policies, seeking to adjust the Selic according to the progress of the scenario.
The Role Of Economic Activity And The Labor Market
The BC’s analysis also highlights the influence of the labor market on inflation behavior. With a heated labor market and the expansion of credit to families, consumption and aggregate demand remain strong, favoring economic growth.
However, the entity emphasizes that these factors also bring challenges to inflation control, as they generate pressures on prices for services and products.
Based on all these points, the Central Bank will continue to closely monitor economic dynamics, especially regarding the pace of growth and the convergence of inflation to the targets set by the government.
The expectation is that the combination of a credible fiscal policy and an assertive monetary policy can stabilize the economy in the coming years.
And you, do you believe that controlling public spending can be the solution for economic growth and reducing inflation?
Como e que se equilibra as finanças de uma família? Diminuindo gastos ! Até encontar o equilíbrio, só que políticos não quer abrir mãos de suas mordomias com super salários de tanto penduricalhos que só levam os salarios doa bam bma bam às alturas. Pra que auxílio saúde pra quem pode pagar um plano? Pra que auxílio moradia pra quem já tem casa? Pra que auxílio paletó? E por aí vai….a hora que políticos viver por vocação não por ambição talves o Brasil mude.
Sim, na diminuição paulatina e constante do VALOR da dívida pública geral brasileira, mesmo sendo ínfima.