October 24, 2019

BRACAGO:

CAN BRAZIL'S PENSION REFORM KICK-START THE ECONOMY? (Andres Schipani and Bryan Harris, OCTOBER 24, 2019, OZY)

WHY DOES IT MATTER?

The pension reform is seen as key to shoring up public finances and restoring confidence in Brazil's sluggish economy, which emerged from a recession in the last quarter. Investors have been following the reform saga closely because the country's spending on social security is among the highest in the world. Last year, it accounted for 44 percent of the federal government's budget and 8.6 percent of gross domestic product. 

Without the reform, the country's pension outlays would balloon to 17 percent of GDP in the next four decades, according to official data. The pension reform has already been priced in by Brazil's financial markets. 

WHAT'S IN THE REFORM?

Rogério Marinho, the government's social security secretary, says the reform -- which will increase retirement age to 65 for men and 62 for women, from 56 and 53, respectively -- represents an 800 billion real ($194 billion) in savings over the next decade, plus 270 billion real of ancillary savings over the same period. 

"This is a big number. It is a good result," says David Beker, chief economist at Bank of America Merrill Lynch in São Paulo. The pension reform should prevent the government's debt ratio from rising over the coming years -- a concern in a country where gross public debt could have topped 120 percent of GDP "if reforms are not implemented," the International Monetary Fund warned in July. 

Posted by at October 24, 2019 12:00 AM

  

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