Overview

Brazil's economic and social progress between 2003 and 2014 lifted 29 million people out of poverty and inequality dropped significantly (the Gini coefficient fell by 6.6 percentage points in the same period, from 58.1 down to 51.5). The income level of the poorest 40% of the population rose, on average, 7.1% (in real terms) between 2003 and 2014, compared to a 4.4% income growth for the population as a whole. However, the rate of reduction of poverty and inequality appears to have stagnated since 2015.

Brazil is currently going through a deep recession. The country's growth rate has decelerated steadily since the beginning of this decade, from an average annual growth of 4.5% between 2006 and 2010 to 2.1% between 2011 and 2014. GDP contracted by 3.8% in 2015, and is expected to fall at least 3% more in 2016. The economic crisis, as a result of the fall in commodity prices and an inability to make the necessary policy adjustments, - coupled with the political crisis faced by the country - has contributed to undermining the confidence of consumers and investors.

The realignment of regulated prices combined with the pass-through of exchange rate depreciation have caused an inflation peak in 2015 (with an inflation rate of 10.7% in December), exceeding the upper limit of the government’s target band (4.5 ± 2%), despite a tight monetary policy and high real interest rates. The inflation rate of administered prices has been decelerating and will contribute to the moderate slowdown expected in 2016. Overall inflation is still expected to end the year at over 7%, above the target ceiling.

Following the impeachment of President Dilma Rousseff on August 31st (2016), former Vice President Michel Temer took office as the new President of Brazil. He announced that his government would pursue several fiscal adjustment measures and a reform agenda to reestablish confidence and to restore a favorable investment environment. However, implementation of the reform program has proven difficult and faces opposition in Congress.

Fiscal adjustment is undermined by budget rigidities and a difficult political environment. Less than 15% of expenditure in Brazil is discretionary. Most public spending is rigidly determined (by rules in the Constitution or other legislation) and cannot legally be reduced. Budget rigidities and pension liabilities have imposed significant burdens on subnational governments, some of which have had to delay payments and may face the risk of insolvency.

The crisis has led to significant adjustments in the balance of payments current account. By July 2016, the current account deficit had dropped to 1.6% of GDP - in comparison with 4.3% in 2014 – mainly in response to the contraction of the GDP (as well as a moderate devaluation in the real exchange rate). Foreign direct investment accounted for 4.2% of the GDP 2015, thus funding 132% of the current account deficit. Brazil had an ample level of reserves of US$ 358 billion - or 18 months of imports - at the end of 2015.

Brazil’s medium-term outlook will depend on the success of the current adjustments and the enactment of growth-enhancing reforms. Raising productivity and competitiveness is the main challenge for the country to achieve higher growth in the medium-term. With the recession of growth drivers over the past decade — credit-fueled consumption, labor expansion and the commodity boom — growth will need to be based on higher investment and productivity gains.

Despite the achievements in poverty reduction over the last decade, inequality remains at high levels. After achieving universal coverage in primary education, Brazil is now struggling to improve the quality and outcomes of the system, especially at the lower and upper secondary levels.

Great progress has also been achieved in reducing deforestation in the rainforest and other sensitive biomes. However, the country still faces major development challenges - especially in finding ways to combine the benefits of agricultural growth, environmental protection and sustainable development.

Brazil played a key role in formulating the climate framework for the 2015 COP 21 and has ratified the Paris Agreement. The country has once again demonstrated its leadership role in international negotiations on climate change, showcased by significant contributions to climate change mitigation within its borders. Brazil has voluntarily committed to reducing its greenhouse gas emissions between 36.1% and 38.9% by 2020 - and it will likely reach that objective sooner.

 

 

The World Bank’s mission is to help Brazil secure long-term sustainable growth and provide development opportunities for its population. US$ 9.6 billion in new IBRD lending were approved under the Bank's 2012-2015 Partnership Strategy.

In 2016, the World Bank launched the Brazil Systematic Country Diagnostic (SCD), identifying the main challenges Brazil would have to face in order to achieve inclusive and sustainable growth.

Based on the SCD findings and the feedback during its dissemination, a new Country Partnership Framework (CPF) is under preparation. The CPF will also be put for ample consultation during the first semester of 2017.

Some of the main issues that will be considered are:

(i)            Pro poor fiscal adjustment;

(ii)           Public sector governance weaknesses and institutional fragmentation;

(iii)          Reform of the financial sector;

(iv)         Competitiveness and productivity agenda; and

(v)          The green growth path.

Throughout the 2012-2015 Partnership Strategy the Bank’s main lending focus has been subnational entities (states and large municipalities) and Brazil's Northeast and North, the country's poorest regions.

In FY14/15, the International Bank for Reconstruction and Development (IBRD) lent a total of US$ 2.5 billion in the country. In FY16 lending slowed down to US$758 million on account of the economic crisis and the adjustment to the new government’s stance on external borrowing. In September 2016 there were 43 active projects and also a very strong and diversified knowledge program.

Social Inclusion

Projects financed by the Bank include support for the highly effective Bolsa Família conditional cash transfer program, which covers 12.7 million families (nearly 50 million people). Bolsa Família ranks among the most effective social protection programs in the world, having contributed to the reduction of extreme poverty.

The list of active projects also includes several actions to promote sustainable rural development in the Northeast, as well as projects in the fields of health, education and water resources. The US$ 200 million project "Pillars of Growth and Social Inclusion in Piauí", approved in December 2015, is an example of a multi-sectoral project that promotes the social inclusion of the rural poor in the state of Piauí through actions put in place to expand and enhance services in the fields of education, health, and agriculture and water resources.

The World Bank has has been working alongside the Brazilian government to facilitate actions against the Zika virus. The bank's health team monitors the situation from an epidemiological standpoint and is supporting the preparation of proposals to combat the disease at the state and federal levels, in partnership with the Ministry of Health and the Health Secretariats of the affected states.

In order to disseminate experiences and good practices, the Brazil Learning Initiative for a World Without Poverty (WWP) is part of a global effort to systematically capture knowledge about the implementation and results of government programs – an approach referred to as ‘Science of Delivery’ – and disseminate experiences both domestically and internationally. It is a partnership between the World Bank, the International Policy Centre for Inclusive Growth (IPC-IG), the United Nations Development Program (UNDP), the Institute for Applied Economic Research (IPEA) and the Ministry of Social Development (MDS).

Governance

The World Bank plays an active role in helping states and municipalities implement results-oriented management practices. Examples include:

Natural Resource Management

Few countries have ecosystems as rich, diverse and important to people's wellbeing as Brazil. The country is home to one-third of the world’s tropical forests, 20 percent of the world’s fresh water and the Cerrado, a tropical savanna with the highest level of biodiversity in the world. A significant part of Brazil’s economy relies on the use of natural resources. Moreover, Brazil’s forests are enormous carbon sinks and an important asset to maintain the global climate in balance.

However, Brazil has been suffering with increasingly frequent extreme weather events - such as floods and droughts - which are rising the country's vulnerability to natural disasters and disproportionately threatening the livelihoods of the poor.

The World Bank's support to sustainable development in Brazil is directed at improving the quality of life through integrated approaches to rural development, better local services in both urban and rural areas, and by contributing to the efficient management of Brazil’s natural assets.

Gender                         

The active promotion of gender equality is an essential component of the World Bank's strategy in Brazil, and has expanded considerably since 2010. In more than 14 states, World Bank Group projects incorporate important Gender components such as actions against domestic violence and the promotion of economic inclusion, improved health services, and/or the reduction of teen pregnancy. 

Brazil’s project portfolio spans several areas of the economy, civil society, and the environment and has had significant positive impacts on people's lives, especially, the most vulnerable.

The Bolsa Família Program has received technical and financial support from the World Bank since the program’s inception in 2003. The program has contributed directly to reducing poverty and improving health and education indicators, and is also an important platform for other social programs.

Upholding their commitment to help improve the quality of life of the rural poor, World Bank rural development projects contain water resources management components, such as the Pernambuco Sustainable Water Project, targeted at the populations of the Capibaribe River and the Recife metropolitan region. The World Bank has also provided technical assistance in formulating the country's First Drought Monitor, a tool that allows the nine states of the semiarid region to manage the phenomenon, thus mitigating the social and economic impacts of droughts.

Health and Education

In health, a number of initiatives supported by the Bank have increased access to health services for those most in need, including the Sector Wide Approach (SWAP) for Paraná Multi-Sector Development Project, which aims to improve the “maternal and child”  and “emergency” healthcare networks. The most impressive result verified was the reduction of the Maternal Mortality Ratio (MMR) that decreased from 63.8% in 2010 to 37.5% in 2015, but the two government programs supported in the health sector that cover maternal health and emergency services have also made significant indirect achievements: the number of neonatal intensive care beds increased from 268 to 1714;  and the percentage of pregnant women identified with high risk of complications referred by primary care units to a hospital that is part of the "Rede Mãe Paranaense", the state maternal and child healthcare network, is 99%, well above the final target of 50%.

Another example is the Integrated Health and Water Management Project, which is providing a set of multi-sectoral interventions to the populations of 10 municipalities with increased access to clean water and sanitation and help improve the quality of neonatal care in 25 hospitals in the state of Bahia, in the northeast of Brazil.

Maternal and child healthcare also receives special attention from the World Bank in Rio Grande do Norte. The "Rio Grande do Norte: Regional Development and Governance Project" have improved healthcare services for women and children by increasing the number of Maternities and beds for newborns which are functional, improving the capacity of urgent and emergency healthcare units in the state, building a new Hospital focused on women Healthcare, and improving the capacity of diagnosis for many diseases with two new Laboratories.

In keeping with the changes in the country's health profile, the World Bank has promoted health projects targeting chronic diseases, such as the "Piauí: Pillars of Growth and Social Inclusion Project", increasing access to diagnostics and specialized care, with more than 5 new centers on treatment covering half of the population of the state; and the "Piauí: Social and productive inclusion Project", that aimed at combating neglected diseases such as Leprosy, Chagas, Geo-helminthiasis, Leishmaniosis and tuberculosis.

Agriculture

The Bank’s programs in agriculture provide assistance that focusses on improving opportunities and livelihoods of family farmers. Innovative projects empower local communities in the poor regions of the Northeast and other parts of the country to invest in improved technologies, to organize themselves in producer associations and bring their products to market. For example, the Santa Catarina Rural Program has helped in the formation of productive alliances, the strengthening of rural extension services and the adoption of numerous practices that intensify production while strengthening their climate resilience.

Environment

In recent years, Brazil has improved its environmental legislation and several initiatives were put in place to combat climate change, which has led to significant emission reductions. The Amazon Region Protected Areas Program  (ARPA) encompasses 60 million hectares of protected areas and the estimated impact of ARPA alone will prevent the emission of 430 million tons of carbon by 2030. Another example is the Marine Protected Areas Program – a pioneer initiative that is expected to triple marine protected areas along Brazil's coast.

 


LENDING

Brazil: Commitments by Fiscal Year (in millions of dollars)*

*Amounts include IBRD and IDA commitments