Brazil government could spend 4% of GDP to counter second COVID-19 wave: economy minister

FILE PHOTO: Brazil's Economy Minister Paulo Guedes delivers a statement at the Itamaraty Palace in Brasilia, Brazil, October 20, 2020. REUTERS/Adriano Machado/File Photo

BRASILIA (Reuters) - Brazil’s government might spend a further 4% of gross domestic product on emergency support measures next year if there is a second wave of COVID-19, Economy Minister Paulo Guedes said on Tuesday.

That would be roughly half of the government’s fiscal effort this year, and financial markets would give that leeway to increase spending because they understand the government’s underlying commitment to restoring public finances back to health, he said.

“Should the second wave hit us, we go about increasing more. Instead of 8% of GDP, probably this time half of that, because we know we can filter now the excesses here and there,” Guedes said in an online event hosted by Bloomberg News.

“Whoever can borrow 8% (of GDP) more can borrow 12%. So we could spend a little bit more, exactly because people understand that we have the resolve to get back to the previous situation as soon as the disease leaves us,” he said.

According to the latest economy ministry forecasts, the impact on the government’s primary budget deficit this year from crisis-fighting measures will be 615 billion reais ($114 billion), or 8.6% of gross domestic product.

Emergency spending will account for 587.5 billion reais, or just over 8% of GDP, and the rest is lost revenues.

This unprecedented borrowing and spending has been separated from the government’s conventional budget under emergency rules, and would likely be done so again next year.

Guedes said, however, that virus cases are “collapsing” and the economy’s recovery is “very strong.” In that scenario, fiscal support will be phased out by end of this year and the government will resume its tight squeeze on public spending.

The government’s drive to reduce the record deficit and debt will include the likely privatization of four companies next year, Guedes said. They are the postal service, electricity giant Eletrobras, the port of Santos, and the portfolio of oil assets in the government-owned group PPSA.

Reporting by Jamie McGeever; editing by Jonathan Oatis