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Brazil – Systematic country diagnostic (The World Bank)

Brazil – Systematic country diagnostic – Retaking the Path to Inclusion, Growth and Sustainability published by The World Bank (5/2016).

Brazil’s prospects have attracted particular interest also because it historically was and remains today one of the world’s most unequal societies. Until the late-1990s, little progress was made in reducing income inequalities in Brazil, but in the past decade Brazil’s socioeconomic progress has been remarkable and internationally noted. It has been successful in pursuing economic prosperity while protecting its unique natural patrimony. More fundamentally, the changed economic circumstances have exposed shortcomings in Brazil’s development model, epitomized by the struggle to achieve a sustainable fiscal policy. This report argues that the desire for a more inclusive state, after the return to democracy, led to a bias in favor of a large and increasing role for the public sector. Fiscal policy has been constrained by hardwired spending commitments and its sustainability risks being undermined by a burgeoning social security system, which provides substantial benefits to the non-poor. Brazil thus finds itself at an important juncture and, to a certain extent, the policy course set today will determine whether the country can sustain the gains of the past and return to a path of solid, inclusive and environmentally sustainable growth. This systematic country diagnostic (SCD) offers a contribution to the debate about Brazil’s future development. The structure of the SCD is as follows: chapter one summarizes Brazil’s achievements in reducing poverty and boosting incomes of the bottom 40 percent (B40), drawing up a profile of the poor and vulnerable, their main assets, access to markets and public services, and susceptibility to various economic risks, as well as the effectiveness of government transfers. Chapter two looks at Brazil’s political institutions to get at the root of the country’s fiscal challenges. Chapter three examines the consequences of these fiscal challenges for macroeconomic management and traces the evolution of Brazil’s macroeconomic policy framework since the days of high inflation in the late 1980s. Chapter four deals with the structural reforms needed to raise the level and types of private investment required to increase productivity growth and competitiveness, with a particular focus on the role of infrastructure. Chapter five reviews the scope for efficiency enhancing and socially progressive reallocations of government expenditures. Chapter six looks at the challenges for improved environmental and natural resource management, and outlines the contours of a future green growth strategy for Brazil. Chapter seven concludes the SCD and draws out the main constraints to Brazil’s development.

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