Brazil's Covid-19 spending projected to drop 80% to R$105.6 billion in 2021

Brazil's government was preparing to spend far less on pandemic relief in 2021 than it had the year before—a sharp reversal that would reshape how the country allocated its resources as the acute phase of the crisis appeared to be passing. The Independent Fiscal Institution, a watchdog agency attached to the Senate, projected that COVID-19 spending would fall to 105.6 billion reais, or about 1.3 percent of gross domestic product. That represented a drop of nearly 80 percent from the 520.9 billion reais—seven percent of GDP—that had actually been disbursed in 2020.

The contraction was real and consequential. The biggest line item, emergency cash assistance to vulnerable Brazilians, was being cut dramatically. In 2020, the government had spent 293.1 billion reais on emergency aid. For 2021, the projection was 44.8 billion reais, enough to cover four months of payments and accounting for people being shifted from the existing Bolsa Família welfare program into the emergency system. That alone represented a reduction of 248.3 billion reais. The fiscal institution noted that if the pandemic worsened, the benefit could be extended—but only if money was available to do so.

Vaccination was the one area where spending was climbing. The government projected laying out 27.8 billion reais on vaccines, an increase of 25.6 billion reais compared to what had been spent in 2020, when immunization campaigns were just beginning. Beyond that, the budget included 18 billion reais for additional health ministry expenses and other departments, nearly 10 billion reais for an employment and income maintenance program, and five billion reais in credit lines for small and medium businesses.

One notable absence from the 2021 projections was any federal aid to states and municipalities. In 2020, the government had transferred 78.2 billion reais to those subnational governments to help them manage the crisis. For 2021, the fiscal institution assumed no such transfers would occur. The government had already authorized 100.8 billion reais in COVID-19 spending for the year, with 69.3 billion reais coming from extraordinary credits opened in 2021 and the remainder from funds released in 2020.

The shift in spending patterns created an opening for other priorities. Because emergency aid was financed through extraordinary credits rather than the regular budget, it sat outside the government's constitutional spending cap—the mechanism designed to limit overall expenditure growth. Bolsa Família, by contrast, was subject to that cap. As people migrated from Bolsa Família to emergency aid, the monthly cost of the welfare program had dropped from 2.7 billion reais in the first quarter to 1.2 billion reais in April. If that pattern held through the four months of emergency aid and then Bolsa Família spending returned to its previous level, the annual cost of the program would land at 26.2 billion reais.

That lower projection for Bolsa Família, combined with other mandatory spending that fell under the spending cap, meant the government could theoretically allocate more money to discretionary spending—the kind of expenditure that required annual appropriation rather than being locked in by law. The government's own estimate was that discretionary spending would reach 110.1 billion reais in 2021. The fiscal institution's projection was higher: 124.9 billion reais. The difference reflected competing assumptions about how much room the budget actually had, and how the government would choose to use it.