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Emergency Aid (Ferro)

Emergency Aid: Positive initial impact but will it last? by Lilian Ferro published by BTGPactual (7/2020).

“In order to contain the impacts of the coronavirus crisis on employment and income, the government announced a series of measures, including the payment of Cash Transfers deemed an Emergency Aid (EA) program for 5 months. By the end of May, the government had already disbursed R$76.9bn in EA. Using the data released recently by IBGE, we estimate that the loss of employment and effective income led to a fall in the effective wage bill of R$33bn between February and May. Thus, payment of the EA was more than enough to contain the loss of the wage bill until May. To find out if the EA payment will continue to be enough to offset the deterioration of the wage bill in the coming months, we have outlined two scenarios based on hypotheses for employment and income. The conclusion is that in a scenario with a recovery of 80% of informal employment, the EA seems to be enough to contain the fall in the wage bill. But in a scenario in which temporary suspensions of employment contracts result in layoffs until the end of the year, an extension of the EA could be necessary to compensate for wage bill losses.

One of the main negative effects of the crisis triggered by the Covid-19 pandemic has been the loss of jobs and income for the most vulnerable workers. Thus, the government announced a series of economic measures, including the payment of cash transfers deemed an Emergency Aid Program (EA). EA is a financial benefit for informal workers, individual microentrepreneurs (MEI), self-employed and unemployed, with the aim of providing emergency protection during the period of crisis. Between April 9 and June 26, the government had already released R$103.8bn in payments, benefiting 64.1 million individuals, out of an estimated total of around R$150bn. In addition, on June 30, the government announced an extension of Emergency Aid for another two months, keeping the amount of R$600 per month, which should total another R$100bn in expenses. The Central Bank, in the minutes of the June meeting, pointed out that “the impact of the credit stimulus and income rebuilding programs (…) have the potential to replenish a significant portion of the aggregate demand that would be lost because of the pandemic. As a result, the recovery of the economy may be faster than that suggested in the baseline scenario”. True, given the sharp drop in consumption, due to restrictions on non-essential activities, it is possible that household savings have increased in the short-term, which will serve as a liquidity cushion for the recovery of consumption in the future. , the importance of an analysis on the impact of AE on household income has increased. Thus, in this first exercise we seek to answer whether the payment of AE will be enough to contain the drop in the wage bill, analyzing what the data has signaled so far as well as possible scenarios for the coming months…”

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