The four economic challenges Lula faces on his return to the government of Brazil

Brazil begins a new phase in 2023 with the recent arrival of Lula da Silva to government with a completely different perspective from his previous phase in government 20 years ago (President Carioca started his term in 2003 and extended it until 2010 after his re-election in 2006), which marked before all Something about the global challenges that the international community has had to face in recent years. The world system is in the midst of a transformation and this is causing economic and geopolitical uncertainties. Lula will have to Adapt quickly to this new reality if you want to promote the development of the thirteenth largest economy on the planet.

The challenge of the pandemic, which continues to cause delays in supply chains and Russian aggression against Ukraine, has affected large economies such as China, Europe and the United States. However, due to the possibility of a file An impending global crisisLarge windows of opportunity seem to be opening up in the Latin American region, so it remains to be seen if Lula will know how to take advantage of them while avoiding challenges such as inflation, public debt, poverty, the strength of the dollar holding Brazil back as a trade competitor, and internal government tensions.

The Ukrainian crisis has caused both positive and negative consequences depending on the country. With the rise in fuel prices, etc raw materialsAnd the Producing countries (Venezuela, Brazil itself, Ecuador, Mexico and Colombia) They benefited greatly from the punishment suffered by the non-producers (Caribbean, Central American, Chilean).

The invasion worsened the outlook for economic growth. The first projections indicate that the Latin American region It will grow less than expected Because of the conflict in Ukraine. In addition, the increase in inflation in the United States translated into higher imported inflation and the expectation of more restrictive monetary policy causing widespread depreciation of the currency. Early interest rate increases by some central banks, such as Brazil, prevented the inflation process from starting.

Brazil that Lola found

Brazil’s public debt is around 76.8% of GDP, with a downward trend from the peak of 90% reached in the first months of the pandemic, but still at high levels. Brazil has maintained a primary deficit (before interest payments) since the end of 2014, accumulating a consolidated deficit of 4.21% of GDP.

Lula’s main election promise means increasing pressure on public accounts, because he will allocate 145,000 million riyals (about $27,800 million) for social assistance, an item that will go beyond budget limits and impose an increase in debt.

Although the country’s economy It will close the year with a growth of 2.9%., due to the aggressive monetary policy implemented by the central bank to control inflation, which raised the official interest rates to 13.75%. The central bank expects Brazil to grow by about 1% in 2023, a figure that, if confirmed, would mean a significant drop in the ability to collect taxes.

Inflation is rising dramatically

Much of the variance in inflation in Latin America is attributed to global factors such as commodity prices, supply shocks from the pandemic and the war in Ukraine, and thus a reflection of the simultaneous recovery in demand across the global scale.

Another major characteristic of inflationary impulse is the delayed increase in the prices of services compared to the prices of goods. Last April 2022, Brazil recorded record inflation for two decades, with an inflation rate of 12.5%.

Poverty is rising and unemployment is falling

Rate The unemployment rate is 8.7% of the active population, the lowest level since 2015But economists fear that a slowdown in the economy could affect the labor market. This data directly affects the public accounts, if it worsens, it means an additional cost in paying unemployment benefits and also, which will limit the government’s margin of action.

According to data compiled by the Brazilian Institute of Geography and Statistics (IBGE), despite the improvement in employment figures, The poverty rate increased in 2021, reaching 29.4% of the populationThat is 62.5 million people. In addition, levels of misery have risen to 8.4% of the Brazilian population, who depend on aid to survive.

In terms of per capita income, Brazil’s average per capita income was $7,5507.2 in 2021, compared to the figure left by Lula at the end of his term in 2010, which was $11,249.5. It should be borne in mind that between these two figures, since 2014 the country has had to face one of the biggest economic crises in its history. By comparison, in 2021, the average per capita income in the United States was $70,248.6 and Spain $30,103.5, according to the organization.

A deeply divided political landscape

The government of Luis Inacio Lula da Silva will have to face the problem of increasing public spending while maintaining fiscal discipline. This is a particularly difficult task in such a volatile and changing economy. Da Silva faces many challenges that are slowing down the country’s development. Compulsory government spending on civil servants, social security or pensions has increased steadily in recent years, in part due to an aging population, and in 2023 it will account for 93.7% of the public budget.

Money spent on government investments and programs will decrease by 14.9% from the available budget in 2022, according to calculations by the Getúlio Vargas Foundation (FGV) think tank. In addition, da Silva has to deal with an opposition-dominated parliament that has brought in his supporters Jair Bolsonaro A third of the country’s 214 million people were forced to live below the poverty line.