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Brazil's Next President Will Have to Face Narrower Spending Margin in Terms of GDP

05/02/2018 - 11h50

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MAELI PRADO
FROM BRASILIA

Due to the country's spending cap, Brazil's next president will have to face the lowest spending margin in terms of GDP since 1997 - which was when the compilation of official data connected to the spending margin began.

According to the Bill of Budgetary Guidelines (PLDO), non-mandatory expenses - which mainly consist of investments and spending connected to the government's operational budget - will represent 3.09% of the coming year's economic activity.

According to data provided by the National Treasury, back in 1999 - during the first year of then-president Fernando Henrique Cardoso's second term - the government's margin for non-mandatory expenses hovered at around 3.7% of GDP. Luiz Inácio Lula da Silva began his terms with 3.1% and 3.6% respectively, while Dilma Rousseff began her terms with 4.1% in 2011 and 4.2% in 2015.

Of the R$ 233.4 billion (US$ 66.6 billion) in expenses concerning the 2019 budget that the government will have some say over, R$ 98.4 billion (US$ 28.1 billion) is entirely non-mandatory. The amount is R$ 15.6 billion (US$ 4.45 billion) less than the amount that was available in 2017, when budget restrictions led to the dismissal of outsourced employees, cuts in university scholarships and even the interruption of services such as the Federal Police's issuance of passports.

"This scenario is practically unsustainable," said Fabio Klein, an economist who specializes in government budgets at consulting firm Tendências. "It is clear that the ability to substantially cut expenses is decreasing," Mr. Klein said.

Manoel Pires, an economist at the Getúlio Vargas Foundation (FGV) and Economic Policy Secretary under the Dilma administration, finds the issue concerning. According to Mr. Pires, just because an expense is non-mandatory does not mean that it is irrelevant. "There are numerous expenses that cannot be easily compressed. One example is spending used to cover services that oversee [Brazil's] airspace," he said.

Translated by THOMAS MATHEWSON

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