World Bank Approves US$658.3 Million for Fiscal and Social SecurityReforms

June 3 2005

Press Release – World Bank

The World Bank Board of Executive Directors today approved a US$658.3 million loan in support of Brazil’s fiscal and social security reforms.

The Programmatic Fiscal Reform and Social Security Reform Loan supports the country’s strong fiscal and macroeconomic performance as well as a critical mass of pension policy actions taken by the Government to reduce further imbalances that could lead to fiscal and macroeconomic discrepancies and inequitable social outcomes.

In addition to the improvement in fiscal/macro performance, this loan supports three specific pension components: (i) the reform of the public sector workers pensions regime (RPPS), together with other policy actions designed to strengthen transparency and discipline in its administration; (ii) initial steps to address imbalances of the private sector workers regime (RGPS) through administrative reforms and the approval of a reform to the work injury program; and (iii) several important steps to strengthen the regulatory framework of the voluntary private pension system and to expand its coverage.

The reform of the pension system for public sector workers is expected to stop the growth of pension expenditures and deficits, generate some fiscal savings during the next decade, and reduce significantly the value of future deficits, especially at the level of states and municipalities.

“Social security is arguably the single most vital aspect of Brazil’s reform agenda today. The significance of actions in this area extends not only to their contribution to fiscal stability and growth, but importantly also to their positive impact on equity.” said Vinod Thomas, World Bank Brazil Country Director.

The government’s reform program should lead to an increase in the average length of service and the average retirement age, a slower growth in the number of new pensioners, declining new average benefits relative to the average existing benefits, stable or declining new disability claims, and a substantial reduction in irregular benefits.

This single-tranched, fixed-spread IBRD loan in US dollars has a repayment period of 17 years, including five years of grace.

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