Brazil Economic Stimulus Package

By: EconomyWatch   Date: 30 June 2010

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Brazil economic stimulus package is based on its ‘accelerated growth program’. Economic stimulus package to Brazil is aimed at higher investment levels and sustained economic growth. Fiscal reforms together with a higher revenue realization approach has ensured a growth of 4.1% in 2008 and projected a growth of 3.8% in 2009. These financial reforms share a close relation with economic stimulus package for Brazil.

Brazil government has adopted a number of monetary policies for effectuating Brazilian economic stimulus package. Rebates and tax deductions amounting to $3.1 billion in 2007 have been set to increase to $5.05 billion by 2011. These tax deductions would be funded by reducing budget surplus. These tax deductions are being provided in form of exemptions of industrial and wealth taxes. To enlarge this tax exemption cover, indirect taxes on commonly used items have also been cut. A good example is that of personal computers. Expenditure tax is exempted for all personal computers upto $1750. Fiscal surplus target has been upwardly revised to 4.3% of gross domestic product (GDP) from 3.8% of GDP.

Monetary tightening has restricted consumption expenditure, which coupled with diminished exports to United States, has projected a reduced economic growth rate from 3.8% to 3.6% in 2009. To keep inflation within controllable limits under an environment of strong demand, it becomes imperative for a stricter monetary policy and an economic stimulus package in Brazil. Brazilian central bank has set its lending rate at 14.25%. National government of Brazil has announced an infusion of approximately $44 billion into National Development Bank of Brazil as a fiscal policy measure contributing to Brazil economy stimulus package.

Building up of infrastructure is another important aspect of this economic stimulus package of Brazil. An investment of $221.4 billion has been earmarked for infrastructure building focusing on transport system and energy segment. Though most of public transport and communication services have been privatized, prices are determined by regulatory agencies. Brazilian government controls airfares while oil prices are regulated by National Petroleum Agency. Government spending in Brazil is high often reaching 41% of GDP, whereas public debt remains around 50% of GDP. In addition to debt service, government spending includes pensions, and monetary transfers to bureaucracy and local governments.



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