Overview

Brazil's economic and social progress between 2003 and 2014 lifted 29 million people out of poverty[1] and inequality dropped significantly (the Gini coefficient fell by 11% in the same period, down to 0.515). 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 poverty and inequality reduction has been showing signs of stagnation 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. The GDP contracted by 3.8% in 2015. The economic crisis - coupled with the political crisis now facing the country - has contributed to undermining the confidence of consumers and investors. The crisis was further exacerbated by commodity price drops and the deterioration of investor sentiment with regard to emerging markets.

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 target band (4.5 ± 2%). The inflation rate of administered prices has been decelerating and will, most likely, be the main driver of the moderate slowdown expected in 2016. It is expected, however, to remain above the target ceiling for the year.

The government has proposed a set of macroeconomic adjustment measures and is setting the stage for structural reforms. In early 2015, the government began a macroeconomic adjustment process based on an ambitious fiscal consolidation plan. Monetary and exchange rate policies have been adjusted to reduce inflation expectations and enable a drop in the real exchange rate. The policy agenda also included measures to boost competitiveness, productivity and investments. However, implementation of the reform program has proven difficult given the challenges in reaching a consensus in Congress.

The fiscal adjustment is undermined by budget rigidities and a difficult political environment. Less than 15% of expenditures in Brazil are expected to be discretionary. Most public spending is mandatory (mandated by the Constitution or other legislation) and increases in line with revenues, nominal GDP growth, or other pre-established rules. Additionally, a large portion of revenues are earmarked for education and health. Attempts to pass legislation to increase revenue collection in the short term and address issues of a more structural nature - such as pensions - have so far fallen short of the government's intentions.

The crisis has led to significant adjustments in the balance of payments current account. By December 2015, the current account deficit had dropped to 3.3% of the GDP - in comparison with 4.3% in the previous year - in response to the contraction of the GDP and a 30% depreciation of the domestic currency. Foreign direct investment accounted for 4.2% of the GDP during the same period, thus funding 132% of the current account deficit. Brazil's has maintaining 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 further growth-enhancing reforms. Raising productivity and competitiveness is the crucial 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 investments and productivity gains.

Brazil boasts extreme regional differences, especially in social indicators such as health, infant mortality and nutrition. The richer South and Southeast regions enjoy much better indicators than the North and Northeast.

Despite the achievements in poverty reduction over the last decade, inequality remains at relatively high levels for a middle-income country. 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, the most recent round of international climate negotiations. 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.

 

[1] Measured by the national poverty line of R$ 140 in 2012

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. The main pillars of the strategy are:

    (i) Strengthening public and private investments;

    (ii) Improving service delivery to the poor;

    (iii) Strengthening regional and territorial development; and

    (iv) Supporting the effective management of natural resources and the environment.

The main focus of the investments has been subnational entities (states and large municipalities) and Brazil's Northeast, the country's poorest region.

In March 2016 there were 38 active projects funded by the International Bank for Reconstruction and Development (IBRD) in Brazil - a total of US$7.6 billion in commitments. Six additional global environment and carbon financing projects remain active, as well as projects executed by the recipients themselves, in a total of US$ 89.5 million in grants.

In 2016, World Bank Brazil began drafting its new strategic planning cycle to guide investments and actions in the country over the next four years.

Social Protection

The actions of the World Bank Group target the poorest populations and aim to promote access to public services with higher levels of quality and efficiency. The main objectives are to eradicate poverty and ensure shared prosperity through support of government actions provided by both the World Bank and its branch in the private sector, the International Finance Corporation (IFC).

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 inequality and 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, agriculture and water resources.

The World Bank has also supported environmental preservation actions - such as the Amazon Region Protected Areas Initiative to curb deforestation in the region - and 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 supports the drafting 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 sometimes 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) of the Secretariat of Strategic Affairs (SAE) and the Ministry of Social Development and Fight against Hunger (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 and crucial to development and people's wellbeing as Brazil. The country is home to one-third of the world’s tropical forests, twenty 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.

These resources must be used sustainably if they are to maximize social and economic benefits. However, Brazil has been suffering with increasingly frequent extreme weather events - such as floods and droughts - which threaten the livelihoods (especially of the poor) and increase the country's vulnerability to natural disasters.

The World Bank's support of sustainability in Brazil is directed at improving the quality of life through better local services offered in urban and rural areas, and at ensuring the efficient management of Brazil’s abundant - albeit fragile - natural assets.

Indicators show progress in the protection and sustainable development of major biomes; however, pollution control and sanitation still pose major challenges.

In Brazil, a set of programs is allowing the country to preserve its rich environment without foregoing economic opportunities for traditional communities living in rich biodiversity areas, including the Amazon Region Protected Areas (ARPA) and the Marine Protected Areas Program – a pioneer initiative that will more than triple the marine area under protection along Brazil's coast.

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. Gender considerations are included in most projects, through the establishment of strategic partnerships - as with the Prosecutor's Office for Women in Brazil's National Parliament - and by conducting dedicated research. In Rio de Janeiro, the "Via Lilás" program provides greater access to basic services in support of the Maria da Penha Law (against domestic violence) to female passengers of the Supervia Urban Train System (a PPP). In more than 14 states, World Bank Group projects incorporate gender components such as actions against domestic violence and in promotion of economic inclusion, improved health services, and/or fewer teen pregnancies. 

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 - including, 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 covers over 12.7 million families — more than 50 million people — a significant portion of the country’s low income population. The program has contributed directly to reducing poverty and inequality 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, many 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 will allow 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 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 healthcare network; and the Integrated Health and Water Management Project, which will provide 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. Projects like "Rio Grande do Norte: Regional Development and Governance" have improved healthcare services for women and children by increasing the number of urgent and emergency healthcare units in the state.

In keeping with the changes in the country's health profile, the World Bank has promoted health projects targeting chronic diseases, such as "Piauí: Pillars of Growth and Social Inclusion (IPF)", increasing access to diagnostics. The project "Piauí: Social and productive inclusion (DPL)" was implemented in the same state, aimed at combating neglected diseases such as leprosy and tuberculosis.

Agriculture

The Bank has also been involved in providing assistance for small-scale agriculture in innovative ways. These projects empower local communities in the poor regions of the Northeast (among others) enabling them to make their own investments and manage their own production. A second generation of these projects links small producers to markets, further increasing their income and wellbeing. The Santa Catarina Rural Program has helped the government recover roads to provide local producers with easier access to major markets, thus increasing the competitiveness of small entrepreneurs.

The World Bank also supports a new generation of projects that focus on local and regional aptitudes for environmentally sustainable income generation. These include the Acre Social and Economic Inclusion and Sustainable Development Project (PROACRE).

Environment

In recent years, Brazil has improved its housing and rural electricity programs and enhanced its environmental legislation. In doing so, several initiatives were put in place to combat climate change, including a voluntary program to reduce emissions by 36.1% to 38.9% in estimated 2020 levels.

The Amazon Region Protected Areas Program  – known as the ARPA Program - has directly contributed to reducing deforestation in the Brazilian Amazon. It encompasses 60 million hectares of protected areas and supports the livelihoods of local communities by strengthening the value chains of forest-based products. The program also includes activities to harmonize the coexistence of small-holders’ plots, forest conservation and large-scale agriculture in Amazonian landscapes. It is estimated that the impact of ARPA alone will prevent the emission of 430 million tons of carbon by 2030.


LENDING

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

*Amounts include IBRD and IDA commitments