PEC dos Precatórios should make credit more expensive and curb economy, says Salto, from the IFI

The approval of the PEC dos Precatórios – which makes room in the 2022 Budget for Brazil Aid – should have an uncomfortable side effect on the economy in the short term, according to Felipe Salto, executive director of the IFI (Independent Fiscal Institution), a linked body to the Federal Senate.

“The economy is a system of communicating vessels. When fiscal confidence suffers shakes or turmoil, those who have the money to finance the government (through the purchase of government bonds) demand higher interest rates on the bonds. With that, the expectation for the basic interest already exceeds 11% in the year”, he says in an interview to CNN.

With higher interest rates, explains Salto, it is more difficult for the government to stabilize the relationship between debt and GDP, which has direct effects on growth. “The increase in interest is motivated by the increased risk (of investing in the country), by the change in the spending ceiling rule, which means the unanchoring of the ‘ship’, which is adrift, and ends up making credit more expensive”, he says.

“What worries me most today is looking to next year and realizing that investments will not flourish, because the cost of taking out credit will be very difficult in view of the decision of the businessmen. 2022 can be a very bad year”, he says, also mentioning the pace of activity.

Economy parked

Salto also commented on the GDP (Gross Domestic Product) result for the third quarter, released this Thursday (2) by the IBGE. According to him, despite the 0.1% decline in the economy between July and September — which configures a scenario of technical recession, as the result was also negative in the immediately previous period — the current scenario is much more of a stationary economy in the than in recession.

“The idea of ​​talking about a technical recession gives the impression that we have entered a trend, a systematic decline, but it is a very small variation, in fact, we are stagnant, what remains for 2022 is that it will be very difficult to have a effective growth rate”, he says.

“The economy is in a dynamic that is almost stationary at the margin (quarter against quarter), which shows that there is not an effective recovery, as it was imagined it could have at this stage of the championship. This happens for external reasons, but also for domestic ones”.

For him, despite the result being very negative for the period, it does not significantly change the prospects for this year. “In the third quarter, GDP was affected on the supply side (production sectors), with agribusiness registering a very poor performance, due to the seasonality of soybeans, climate issues, but when we look at industry (0%) and services (1.1%), there is nothing very encouraging either”.

“This year, we are going to have a 4.5% GDP growth, probably below the 4.9% forecast previously, due to a very low comparison basis. Last year there was a 4% drop in the economy, a real recession”.