Fiscal discipline and state action are ways to expand investments, say experts

The recovery of the Brazilian economy in 2021, which resulted in a 4.6% growth in GDP (Gross Domestic Product) in the period, had an important influence on the level of investments made in the country.

The investment rate in relation to GDP reached the mark of 19.2% last year, above the 16.6% in 2020 and the average of 15.2% between 2016 and 2019, according to data from the IBGE (Instituto Brasileiro of Geography and Statistics).

Although methodological aspects have contributed to last year’s result, low interest rates and the sharp rise in commodity prices had a more relevant weight in the decision of large companies to unpack projects and resume new investment fronts.

For 2022, experts estimate that the necessary conditions are lacking for the investment process to continue expanding in the country.

Interest rates much higher than those that had been practiced in recent months and weak growth in economic activity, added to electoral uncertainties, should reduce the impetus of the private sector to start large projects in the short term in a structural way.

The path for the country to be able to sustain a more consistent trajectory of investment growth, however, divides the opinion of economists.

In an event promoted this Thursday morning (28) by Sheet and by FGV-Ibre (Brazilian Institute of Economics of Fundação Getulio Vargas), different views were pointed out as an alternative to increase the level of investments, with consequent positive effects on the Brazilian potential GDP. The event was mediated by Fernando Canzian, special reporter for Sheet.

divergent views

Associate researcher at FGV-Ibre and columnist at SheetSamuel Pessoa defended the idea that the government must prioritize fiscal policy.

According to him, only with the public accounts in order would it then be possible to envision a more sustainable path for the investment rate and for the potential growth of the economy.

To encourage private capital to seek new investment projects, bringing in tow a complementary role to be performed by the public sector, it is necessary that the target profitability targeted by companies also rises, said Pessoa. “And the profitability [das empresas] goes up if we make reforms that increase the efficiency of the economy”.

Also an associate researcher at FGV-Ibre, Gilberto Borça differed from his colleague.

For him, even before fiscal consolidation, the most desirable thing would be for the public sector to inject a greater volume of resources destined to finance large infrastructure projects.

The heating up of economic activity caused by government policy, in turn, would lead to greater GDP growth, opening space for the necessary adjustment of public accounts, said Borça.

“Accelerating investment so that potential growth can also accelerate is essential,” he said.

He recalled that, despite a series of macro and microeconomic reforms promoted in recent years, such as labor and social security, the desired economic growth has not yet arrived.

“Since the crisis of 2015 and 2016, we have not been able to accelerate this growth trajectory”, said the academic, who during his speech cited the concept of “hysteresis”, according to which a weak performance of the economy in the short term can become also affect a country’s growth prospects over longer time horizons.

For Pessoa, choosing the route of prioritizing the increase in investment, to the detriment of a previous fiscal balance, would bring as a medium-term consequence a more pressured inflation and higher interest rates, with exchange devaluation and negative impacts on economic activity and the job.

“If we look at the Brazilian experience, the construction of fiscal stability precedes growth cycles and the increase in public investment,” said Pessoa.

He mentioned the work of balancing public accounts in the second term of the government of Fernando Henrique Cardoso and in the first term of Luiz Inácio Lula da Silva, who, according to the researcher, was responsible for opening space for the growth that came in the following years. .

education and innovation

Coordinator of Cemec-Fipe (Center for Capital Market Studies of the Economic Research Institute Foundation), Carlos Antonio Rocca shared the vision presented by Samuel Pessoa.

For Rocca, first of all, a medium and long-term vision is needed to try to tackle the structural deficiencies that the country has had for quite some time.

Data from the IFI (Independent Fiscal Institute) cited by Rocca indicate that the potential growth of Brazilian GDP in the next decade is a modest 1.7% per year.

“We have millions of people with serious problems of poverty, and over this decade, with this growth [projetado]will not significantly change the picture”, said the Cemec-Fipe specialist.

A greater opening of the local economy to increase competition, but above all investment in education, in order to develop innovation policies that lead to productivity gains later on, was the path pointed out by the coordinator for the country to be able to advance in the agenda. of investments on a permanent basis.

Rocca added that keeping interest rates at low levels is another necessary condition, without which it will not be possible to advance an agenda for the evolution of investments in the region.

“Private investment will only happen to the extent that the rate of return is higher than the cost of capital. So keeping interest rates low is essential to stimulate private investment,” he said.