www.oecd.org/eco/surveys/economic-survey-brazil.htm

OECD

OECD Economics

2015 OECD ECONOMIC SURVEY OF BRAZIL

Reigniting inclusive growth

Brasília, 4 November 2015

2

Poverty and inequality have declined

Poverty and Gini coefficient1995-2013

Source: IBGE; World Bank.

0

5

10

15

20

25

30

0.46

0.48

0.5

0.52

0.54

0.56

0.58

0.6

Absolute poverty (below USD 2 per day, left scale)Gini Index (right scale)

3

Health outcomes have improved

Life expectancy at birth

Source: OECD Health Statistics 2015, http://dx.doi.org/10.1787/health-data-en.

JPN

ESP

CHE

ITA

FRA

KOR

CAN

GBR DE

U

PRT

OEC

D

CRI

CHL

USA

POL

TUR

CHN

COL

BRAZ

IL

MEX ID

N

RUS

IND

ZAF

40

50

60

70

80

902013 1970

Years

4

Productivity has been weak

Labour productivity, 2000=100

Source: Feenstra, Robert C., Robert Inklaar and Marcel P. Timmer (2013), “The Next Generation of the Penn World Table” available fordownload at www.ggdc.net/pwt.

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 201180

100

120

140

160

180

200

220

240

BRAZIL China India Mexico South Africa

Thousands of USD / person employed, at purchasing power parities

5

The economy is in recession

Quarterly GDP growth at seasonally-adjusted annual rates

Source: OECD Economic Outlook Database.

-8

-6

-4

-2

0

2

4

6

8

6

The currency has depreciated

Source : Central Bank.

0.0

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0

20

40

60

80

100

120

140

160

180

200

USD/BRL exchange rate (left scale)

Real effective exchange rate (right scale)

7

Policies to restore confidence

8

The fiscal position has deteriorated

Primary expenditures and tax revenues

Source: Central Bank; National Treasury.

1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 201625

27

29

31

33

35

37

25

27

29

31

33

35

37

Tax revenues (% of GDP)

9

Gross debt is rising

Possible debt trajectories

Source: OECD calculations.

Implement the fiscal adjustment in line with medium term objectives, including to stabilise gross debt

Gradually raise the retirement age and index pensions to consumer prices rather than the minimum wage

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 20250

10

20

30

40

50

60

70

80

90

100

0

10

20

30

40

50

60

70

80

90

100

Current plans with primary results of 0.15% (2015), 0.7% (2016), 1.3% (2017) and 2.0% thereafterScenario with primary surplus of 3% after 2018Scenario with continuing transfers to public banks of 1.9% of GDP

% of GDP % of GDP

10

Inflation is high

Source : Central Bank.

0

2

4

6

8

10

12

Headline inflation YoY Core inflation YoY

Inflation target

Tolerance band

Establish fixed-term appointments for the Central Bank governor and the members of the Monetary Policy Committee

11

The efficiency of monetary policy could be improved

Monetary policy rate and directed lending rate

Source: Central Bank.

Adjust the directed lending rate in line with the monetary policy rate

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 20150

2

4

6

8

10

12

14

16

18

20

0

2

4

6

8

10

12

14

16

18

20

Directed lending rate (TJLP) Monetary policy rate (Selic)

12

Policies to boost industrial performance

13

Labour productivity in manufacturing is lowID

NCO

LEC

UBR

AZIL

THA

VEN

HRV

MEX ES

TCH

LM

YS TUR

HUN

ZAF

POL

PRT

HKG

SVK

CZE

SVN

GRC

ARG

ITA

NZL

AUS

FRA

KOR

DEU

GBR JP

NSG

PIS

LAU

TDN

KBE

LFI

NNO

RNL

DUS

ASW

ECH

E

0

20

40

60

80

100

120

140

160

180

0

20

40

60

80

100

120

140

160

180in thousands of 2005 USD per employee

14

Tax compliance costs are high

Hours required to prepare taxes For a benchmark manufacturing company, 2014

Source: World Bank.

Consolidate indirect taxes into a value added tax with a broad base

LUX

CHE

IRL

EST

NOR

FIN

AUS

GBR

SWE

NLD

DNK

CAN

MYS FR

AIS

LNZ

LBE

LCR

IAU

TES

PRU

SUS

AKO

RGR

CPH

LZA

FSV

KDE

UTU

RIS

RCO

LIN

DID

NSV

NCH

NTH

AIT

APR

THU

NPO

LCH

LPE

RUR

YJP

NM

EX PRY

ARG

CZE

VEN

BRAZ

IL

0

500

1000

1500

2000

2500

3000

0

500

1000

1500

2000

2500

3000

15

Brazil trades little with the rest of the world

Trade in % of GDP (average 2010-2013)

Source: OECD-WTO Trade in Value Added (TiVA) – July 2015.

Lower tariffs and scale back local content requirements

BR USA

ARG

JPN

COL

AUS

VEN

IDN

ITA

TUR

FRA

NZL

GRC EC

UG

BR ZAF

MEX

NOR

CHL

PRT

FIN

HRV

DEU

SWE

POL

DNK

AUT

ISL

KOR

CHE

SVN

CZE

THA

NLD

MYS BE

LHU

NES

TSV

K

0

20

40

60

80

100

120

140

160

180

200

0

20

40

60

80

100

120

140

160

180

200Trade in % of GDP (average 2010-13)

16

Regulatory barriers to entrepreneurship are high

Indicator scaled from 0 (least restrictive) to 6 (most restrictive)

Source: OECD Product Market Regulation Indicators, 2013, available at www.oecd.org/eco/pmr.

Streamline regulation and reduce barriers to entry

SVK

NZL

NLD

ITA

DNK

AUT

CAN

PRT

GBR RU

SFI

NCH

EES

TPO

LDE

UJP

NFR

AAU

SNO

RHU

NSW

ELU

XBE

LSV

NCZ

EKO

RG

RC IRL

CHL

ISL

ESP

ZAF

MEX IS

RTU

RBR

AZIL

CHN

IND

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

17

Brazil’s infrastructure is poor compared to its major trading partners

Normalised to 1 for the value of Brazil

Source: World Economic Forum, World Bank, FIESP.

Improve the technical capacity and planning for infrastructure concessions Elaborate more detailed tender packages prior to launching tender calls

Road density Rail density0

2

4

6

8

10

12

14

BRAZIL

Major emerging trading partners

Major trading partners

Road quality Rail quality Port quality0

0.5

1

1.5

2

2.5

3

18

Skills are still weak

Percentage of students in secondary education enrolled in vocational programmes

Source: UNESCO Institute for Statistics. Data for 2012.

Boost the participation in vocational training to alleviate skill shortages for technical workers

ZAF

BRAZ

ILCO

LG

BRKO

RLC

NJP

NAR

GNZ

LTH

AO

ECD

HUN

IRL

MEX CR

IRU

SG

RC ESP

IDN

DEU

ISR

EST

FRA

CHN

ISL

CHL

TUR

PRT

DNK

SWE

NOR

LUX

FIN

SVK

CHE

AUS

SVN

ITA

CZE

BEL

AUT

NLD

0

10

20

30

40

50

60

0

10

20

30

40

50

60

19

Policies to improve public health services

20

Medical staff is in short supply

Practising doctors Practising nurses

Train more doctors and nurses Implement targets for expanding specialised medical services to reduce

waiting times

Source: OECD Health Statistics 2015.

RUS

PRT²

DEU

CHE

ITA

ESP

FRA¹

OEC

DG

BR USA

CAN¹

JPN

POL

KOR

MEX

CHL²

BRAZ

ILCO

LTU

R¹CH

NZA

FIN

DID

N

0

1

2

3

4

5

6Per 1 000 population

CHE

DEU

USA¹

JPN

CAN

FRA¹

OEC

DG

BR RUS

ITA¹

PRT¹

CHL²

POL

KOR

ESP

MEX CH

NTU

R¹BR

AZIL

IND

ZAF

IDN

COL

02468101214161820

Per 1 000 population

21

Regional disparities are large

Registered doctors per 1000 inhabitants

Source: Conselho Federal de Medicina (2013): Pesquisa Demográfica Médica no Brasil.

Strengthen incentives to reduce geographic imbalances

Doctors Doctors affiliated to SUS

22

Enhance spending efficiency in healthcare

Potential gains in health-adjusted life expectancythrough efficiency improvements, at constant expenditure levels

Source: OECD calculations based on World Bank and WHO data.

Enhance spending efficiency, including by developing a more explicit definition of what is covered wider use of performance indicators and incentive-based mechanisms shifting the emphasis from hospital care towards primary care services

KOR

JPN

ITA

ESP

CO

LIS

RC

RI

PRT

THA

GR

CFR

AC

HL

PER

CH

EAU

TAU

SBO

LID

NU

RY

NZL

MEX

VEN

CH

NPA

NSW

EBE

LTU

ND

EU EST

NLD

ARG

POL

FIN

NO

RG

BRD

NK

TUR

USA

BRAZ

ILIN

DR

US

ZAF

0

2

4

6

8

10

12

14

0

2

4

6

8

10

12

14

23

Improving equity in health expenditures is key

Per capita health expenditures, USD at purchasing power parities

Source: OECD Health Statistics 2015, http://dx.doi.org/10.1787/health-data-en; WHO Global Health Expenditure Database.

Gradually phase out the tax deductibility of private healthcare expenses to free more resources for the SUS

Raise funding for public healthcare

0

1000

2000

3000

4000

5000

6000

7000

8000

9000

10000

0

1000

2000

3000

4000

5000

6000

7000

8000

9000

10000

Brazilians with private health insurance

Brazilians without private health in-surance

Brazil - average

24

Great Good

Regular

Bad

Very bad

N/A

The quality of care could be improved

Perceived quality of public healthcare services

Source: CNI, 2012.

Improve the collection of performance indicators and enhance the use of benchmarking and incentive-based mechanisms, including pay-for-performance schemes

Provide stronger incentives for accreditation of hospitals. Strengthen the licensing process, including enforcement mechanisms

Improve the coordination of healthcare services and the exchange of information by linking databases across healthcare providers

Over 60% of respondents say “bad” or “very bad”

25

Further recommendations on healthcare

Develop clinical guidelines for the choice of cost-effective medicines

Set reference prices for all medicines

Define an exclusive list of reimbursed medicines

Strengthen the role of regional networks through stronger leadership of states

Improve the co-ordination and exchange of information by linking databases

Provide more long-term care services in the public healthcare system

26

SUMMARY: Main Findings

o The fiscal position has deteriorated. Additional long-term fiscal challenges will arise from population ageing.

o Inflation has risen above the tolerance band.

o A fragmented system of indirect taxes causes high compliance costs.

o High trade protection and weak competitive pressures hold back productivity.

o Public healthcare services are facing severe capacity constraints and are unevenly distributed across the country.

o Many healthcare services that are currently provided in hospitals could be provided more cost-efficiently in primary healthcare units and long-term care services.

27

Key Recommendations

o Implement the fiscal adjustment in line with medium-term objectives, including a stabilisation of gross debt

o Gradually raise the retirement age and index pensions to consumer prices

o Consolidate indirect taxes into a value-added tax with a broad base

o Lower tariffs and scale back local content requirements

o Define clearly what is covered in public healthcare services.

o Expand the use of performance indicators and incentive-based mechanisms in healthcare

o Train more doctors and nurses and implement targets for expanding specialised medical services to reduce waiting times

28

More Information…

www.oecd.org/eco/surveys/economic-survey-brazil.htm

OECD

OECD Economics

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