February 28, 2018 / 3:07 PM / a year ago

UPDATE 2-OECD sees Brazil pension reform as urgent litmus test

(Adds Gurría comment on Brazil accession to OECD)

By Anthony Boadle

BRASILIA, Feb 28 (Reuters) - Pension reform will be the “litmus” test of Brazil’s ability to bring its fiscal deficits under control and avoid unsustainable growth of its already high public debt, the Organization for Economic Cooperation and Development (OECD) said on Wednesday.

In its annual survey of the Brazilian economy, the OECD said the streamlining of Brazil’s generous social security system was urgent because it costs 12 percent of GDP.

“Aligning Brazil’s pension rules with those practiced in OECD countries would imply a minimum pension lower than the minimum wage, with eligibility to some prorated pensions for shorter periods,” the survey said.

Brazil’s President Michel Temer failed to muster enough support for his pension reform proposal this month and it has been put off until after the October elections and will likely be left for the next government to deal with.

“Brazil is back on a positive growth path, but there is no time for complacency,” OECD Secretary-General Angel Gurría, said, presenting the survey in Brasilia.

Brazil needs more investment, higher productivity and greater integration into the global economy, for which it must continue on the reform path to ensure the sustainability of its fiscal accounts, Gurría said.

The OECD report warned that if Brazil fails to reduce mandatory public spending and the government’s primary deficit is not turned to a surplus, the country’s debt relative to GDP “will continue to rise without bounds and not be sustainable.”

Failure to comply with a spending cap introduced by the Temer administration, which limits real growth in public spending to the rate of inflation for 20 years, would undermine confidence in Brazil and trigger a return to recession.

“Successful implementation of the pension reform, without which the expenditure rule cannot be met in the medium term, will be a litmus test for the ability of the authorities to implement further structural reforms,” the survey said.

Gurría said Brazil was the best placed of the six countries seeking to join the 35-member Paris-based OECD. The others applying are Argentina, Bulgaria, Croatia, Peru and Romania.

Business lobbies, such as the International Chamber of Commerce, back Brazil’s accession because it will spur the country to improve its tax system and become more competitive.

The OECD sees the Brazilian economy growing by 2.2 percent this year and 2.4 percent in 2019, a lower forecast for next year than the government’s projection of 3 percent.

As Brazil puts its worst recession in decades behind it, inflation will creep up to 4.2 this year and next, from 3.9 last year, the OECD estimates.

Gross public debt, assuming that the current fiscal reform plan will advance, will rise to 77.1 percent of GDP this year and to 81.1 percent in 2019, according to the OECD’s forecast. (Reporting by Anthony Boadle; editing by Nick Zieminski and Jonathan Oatis)

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