OECD Economic Surveys: Brazil 2020
The COVID-19 pandemic has caused severe human suffering and triggered a deep recession in Brazil. Economic policies reacted in a timely and decisive manner to the crisis, supporting millions of Brazilians. But a strong and inclusive recovery from the recession will require long-lasting improvements in economic policies. Improving fiscal outcomes remains one of Brazil’s principal challenges given a high debt burden, to which the pandemic has added significantly. Public spending will need to become more efficient, including by building on past progress in the fight against corruption and economic crimes. Social protection can be strengthened through a better focus on the most effective policies and benefits, which could allow significant reductions in inequality and poverty. Stronger growth will hinge on raising productivity, which has been virtually stagnant for decades. This requires addressing underlying policy challenges, including reducing regulatory burdens, reforming taxes, strengthening judicial efficiency and fostering a stronger integration into the global economy. Raising productivity implies reallocations and structural changes in the economy, which should be accompanied by well-designed training and education policies. Training with a strong focus on local skill demand can help workers master the transition and seize new opportunities to move into better jobs.
SPECIAL FEATURES: BOOSTING PRODUCTIVITY; SKILLS POLICIES TO FACILITATE STRUCTURAL ADJUSTMENT
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Raising productivity through structural reforms
The recovery from the current deep recession caused by the COVID-19 pandemic will require raising productivity through structural reforms. This implies a number of challenges for economic policies. With large parts of the economy shielded from competition, firms face weak incentives to become more productive. Sizeable shares of labour and capital are trapped in low-productivity firms that survive on the back of support from distortive policies. Reallocation mechanisms such as continuous firm entry, exit or the growth of stronger firms on the expense of less productive ones appear weaker than elsewhere. Domestic regulatory burdens and market entry barriers are high, reducing domestic competitive pressures. External competition is hampered by high trade barriers that have precluded Brazil from the opportunities that an increasingly integrated world economy can offer. A fragmented tax system gives rise to one of the world’s highest tax compliance costs and a wide array of exemptions and special regimes reduces fairness and the redistribution effect of taxes. Financial markets used to be dominated by directed credit, but thanks to a successful policy reform that aligned directed lending rates with market rates, they are now undergoing a profound transformation. Challenges in contract enforcement suggest scope for changes in the organisation of the judiciary to reduce judicial uncertainty and reduce trial durations.