Level of Public Investment in Brazil Is the Worst in the Last 10 Years

09/11/2017 - 10h02

The public investment in Brazil reached the lowest level in the last ten years, which has contributed to push down the G.D.P. (Gross Domestic Product) even more.

Amid a strong effort to reduce expenditure and meet the fiscal target, the investments made by the federal government in the first seven months of this year have totaled R$ 16.3 billion (US$ 5 billion), nearly R$ 10 billion (US$ 3.1 billion) less in comparison with the same period in 2016 and the lowest amount since 2008, when the series began to be recorded by the National Treasury.

This total includes public construction and the purchases of new facilities for government agencies, as well as materials for permanent use, such as computers.

Investments are natural candidates to be cut in times of adjustment, as more than 90% of public expenditure follows outlay rules and cannot be reduced without a change in legislation.

On the other hand, they are an important factor to stimulate the economy.

Manoel Pires, an economist at FGV and former secretary of Economic Policy of the Dilma Rousseff administration, says that cutting investment has a strong impact on the activity - much more than the decline in expenses related to civil service or subsidies.

"When subsidies are increased, the effect on the activity is marginal. In the cases of expenses related to public servants' wages, it is between 0.6 and 0.7 [percent] of the G.D.P. For investments, that number reaches between 1.4 and 1.6 [percent]."

In other words, for every R$ 1 (US$ 0.3) spent by the government with investment, the G.D.P. increases by R$ 1.60 (US$ 0.5). If there is as cut, it has an opposite effect.

Translated by THOMAS MUELLO

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