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Overview

The COVID-19 pandemic exposed Brazil to an unprecedented health and economic challenge. To contain the pandemic, Brazil implemented social measures to slow the spread of the virus and contain its impact on the health system capacity, which is uneven across the country. COVID-19 hit as Brazil was still recovering from its 2014-16 recession. Economic recovery remained weak and fiscal policy space limited since the peak of the recession in 2015-2016, with GDP growth below 2 percent in the following years.

The pandemic, and the health policy response to it, resulted into a sharp decline of external and domestic demand while also constraining supply.  It has brought uncertainties to the macroeconomic policy framework, especially in the fiscal area, which translate into downside risks, thus calling for strong fiscal consolidation and the adoption of structural reforms in 2021, as soon as the spread of the disease is controlled.

To protect the most vulnerable people, the Government put forward a large, timely, targeted and time bound fiscal package focused on social assistance. The cost of this package was estimated at BRL 815.5 billion (US$156.8 billion), or 11.4 percent of GDP in 2020. The large fiscal stimulus limited the annual contraction in 2020 to 4.1 percent. Recovery momentum is expected to propel growth to 3.0 percent in 2021 but this is subject to large uncertainty, particularly on the impact of the new wave of the pandemic and the pace of vaccination.

As of March 2021, Brazil reached its highest peak yet in the COVID-19 pandemic, in stark contrast with other parts of the world’s downward trends. Brazil has the second world largest number of confirmed COVID-19 cases (12.7 million) and deaths (321,000, i.e., 149 per 100,000 people).

A combination of factors explains the situation. A new and more contagious COVID-19 variant (P.1) was discovered in Manaus in early 2021. The health system was not prepared to handle a large volume of cases:  by end of March 2021, the majority of states have experienced over 90% of ICU occupancy rate, with shortages of critical supplies such as oxygen and sedatives (needed for administering oxygen), reflecting planning challenges and coordination issues between the federal and subnational levels. Vaccination efforts continue, albeit at slow pace, and 16.9 million people (7.9 percent of the population) received their first dose so far.  Brazil secured vaccines from Coronavac and AstraZeneca/Oxford (mostly locally produced), and recently purchased 100 million doses from Pfizer and 10 million doses of Sputnik V.

The COVID-19 pandemic is also jeopardizing years of progress in poverty reduction and human capital accumulation. While the poverty rate temporarily fell to 21 percent in 2020 (from 29 percent in 2019) thanks to generous social emergency transfers (Auxilio Emergencial) to 66 million individuals and the expansion of the Bolsa Familia Conditional Cash Transfer (CCT) program but it is expected to rise again this year with the end of the temporary assistance and the weak labor market recovery due to the second wave of the pandemic.

Moreover, Brazil is among the LCR countries that suffered the longest spell of public schools’ closures to date, which is expected to raise learning poverty from 48 to 70 percent and to disproportionately affect the poor (remote learning benefited less than 50 percent of students in less developed regions, vs. 92 percent in richer parts of the country). As a result, the impact of COVID-19 is expected to reverse a decade-long of steady improvement in the Human Capital Index (which had increased from 0.52 to 0.58 between 2007 and 2019) and calls for strong remedial acceleration policies.

Striking the right balance between protecting the poor and ensuring sustainable public finances, including at subnational levels, will be a key policy challenge in 2021.

Supporting the transition to a greener and more resilient growth model also remains a key challenge. Brazil is home to more than 60 percent of the Amazon rainforest, the largest tropical forest in the world and has a high share of renewables in its energy matrix, but high exposure to climate risks and deforestation call for a strong reform agenda to address these challenges. Due to the increase in deforestation emissions, Brazil is not on track to meet its NDC targets (a reduction of GHG emissions of 37% by 2025 and 43% by 2030, relative to 2005) and has yet to develop an integrated long term national strategy to achieve its climate goals. Recent reforms in the infrastructure sector, together with the administration’s renewed interest in the climate agenda, provide sound opportunities for Brazil’s green recovery and for lifting millions of Brazilians out of poverty.

Last Updated: Apr 06, 2021

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