NEW YORK (Reuters) - Pension reform in Brazil that delivered savings of up to 700 billion reais ($183 billion) over the next decade might be acceptable for investors, but not the government, Treasury Secretary Mansueto Almeida said on Wednesday.
Brazil must also stick to its fiscal commitments and cut public spending for the long-term benefit of the country, even if doing so has a detrimental short-term effect on an economy that is already struggling to gain traction, Almeida said.
Social security spending is by far the biggest single drag on government finances. Last year it accounted for 44 percent of the federal government’s budget and 8.5 percent of gross domestic product. Without reform, the government says, outlays will climb to 17 percent of GDP by 2060.
The government of far-right President Jair Bolsonaro is seeking to push through an overhaul of the costly pension system. But it is struggling to get the bill through a fragmented Congress. [nL1N21M24M]
The former government attempted to pass a bill that would have saved 400 billion reais. That level would be “too low,” said Almeida, while market estimates that the new reform will save 600-700 billion were still not enough, he added.
“For us, the proposal we sent, we expect something near 1 trillion reais. That’s the right amount, the best amount. But let’s see,” Almeida told Reuters in an interview on the sidelines of a conference in New York.
The biggest variable in what Congress eventually passes is the government’s ability to build political support among scattered lawmakers who represent some 30 parties, Almeida said, adding there have been “some problems” with the communication between the government and Congress.
Brazil’s economy has struggled to recover from a 2015-16 recession, and economic data so far this year has been disappointing. The government and central bank have joined private sector economists in cutting their growth forecasts, but that does not alter the need to maintain fiscal discipline, said Almeida.
“Of course slower growth impacts revenue and this might bring some problems in terms of the primary surplus,” Almeida told Reuters.
“It doesn’t matter if the economy is growing faster or slower, we need to cut expenditure. As soon as the economy starts growing again, we will have the revenue and we can increase investment again,” he said.
The government already has a spending cap bill that says the government must cut public expenditure by two percentage points over its four-year term.
($1 = 3.8237 reais)
Reporting by Jamie McGeever; Editing by Rosalba O'Brien