Latin America’s largest economy, Brazil, is closer than ever to overhauling its costly pension system. That’s been the focus of the first sustained legislative drive by President Jair Bolsonaro, his economic team and allies. Efforts to muster support for a major reform failed under previous administrations. Now, Brazil’s Senate is set to approve changes that could boost the nation’s public finances and open the door to a virtuous cycle of expansion.

1. Why is pension reform so important?

Brazil’s pension expenditures are already high compared to those of other countries, and a rapidly aging population makes the current system a ticking time bomb. Brazil spends the equivalent of 13% of gross domestic product on social security, well above the average of 8% for G-20 nations, according to a government report published in December. On pensions specifically, Brazil spends the equivalent of 8.6% of GDP. The pension fund for private sector workers is expected to run a deficit of 218 billion reais ($53.2 billion) this year, up from 195.2 billion reais in 2018, while the fund for public servants will also be in the red. At present, Brazil’s economically active population pays for retirees’ pensions. The number of citizens over the age of 65 will jump to 25.5% of the population in 2060 from just 9.5% now, according to the national statistics agency.

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