Brazil: Gearing up for social security reform – Standard Chartered

Daniel Sinigaglia, Latam economist at Standard Chartered, suggests that in Brazil, the draft social security reform bill will be made public this week after an intense speculation and contradictory news flow.

Key Quotes

“Assuming that the new draft bill is similar to the version leaked to local media, the proposal is very ambitious in terms of its scope and fiscal impact. Public statements by cabinet members in the new administration point to BRL 1tn in savings over 10 years, significantly higher than former President Termer’s initial proposal of BRL 723bn over the same timeframe.”

“The complexity of social security reform, and the political hurdles it faces, should not be underestimated.”

“With expectations currently high, there is scope for disappointment. In light of what Congress has already decided on Temer’s initial reform proposals, BRL 1tn of savings sounds unrealistic to us. Such a sum would require radical changes to the rules of the current system, some of which have already been rejected by Congress.”

“On the other hand, there is plenty of upside in the new proposals, particularly in terms of long-term fiscal benefits. If the transition from the current pay-as-you-go system to a fully funded regime is approved, this could significantly reduce long-term fiscal risks and mitigate some of the key distortions in Brazil’s economy.”