Exhibit D

TABLE OF CONTENTS

 

INTRODUCTION			D-4
MAP OF BRAZIL			D-4
SUMMARY			D-5
RECENT DEVELOPMENTS			D-7
COVID-19			D-7
THE FEDERATIVE REPUBLIC OF BRAZIL			D-8
Political Developments			D-8
Employment and Labor			D-9
Social Security			D-9
Environment			D-9
THE BRAZILIAN ECONOMY			D-9
Economy in 2022			D-9
Gross Domestic Product			D-10
Principal Sectors of the Economy			D-10
FINANCIAL SYSTEM			D-11
Monetary Policy and Money Supply			D-11
Foreign Exchange Rates			D-11
Financial Institutions			D-11
Banking Supervision			D-11
BALANCE OF PAYMENTS			D-12
PUBLIC FINANCE			D-12
Public Debt Management			D-15
Internal Public Debt			D-16
Regional Public Debt (State and Municipal)			D-16
Rating Agencies			D-16
THE FEDERATIVE REPUBLIC OF BRAZIL			D-17
Geography and Population			D-17
Form of Government			D-18
Political Developments			D-19
Foreign Affairs, International Organizations and International Economic Cooperation			D-20
Employment and Labor			D-20
Social Security			D-20
State-Owned Enterprises			D-21
Environment			D-21
Education			D-21
Wealth and Income Distribution			D-22
Antitrust			D-22
Anticorruption Laws			D-22
Incentives for Private Investment			D-23
THE BRAZILIAN ECONOMY			D-24
COVID-19			D-24
Historical Background			D-25
Economy in 2021			D-25
Principal Sectors of the Economy			D-28
THE FINANCIAL SYSTEM			D-31
General			D-31
Monetary Policy and Money Supply			D-31
Foreign Exchange Rates and Exchange Controls			D-33
Financial Institutions			D-34
Banking Supervision			D-34
Securities Markets			D-36
BALANCE OF PAYMENTS			D-37
Current Account			D-37
Financial Account			D-43
Reserve Assets			D-44
PUBLIC FINANCE			D-45
General			D-45

 

i

Exhibit D

 

Budget Process			D-46
2022 Budget			D-47
Federal Government Programs			D-47
Taxation and Revenue Sharing Systems			D-47
Fiscal Responsibility Law			D-48
Fiscal Crime Law			D-49
PUBLIC DEBT			D-50
General			D-50
Public Debt Indicators			D-50
Public Debt Management			D-52
Internal Public Debt			D-53
External Public Debt			D-54
Regional Public Debt (State and Municipal)			D-55
TABLES AND SUPPLEMENTARY INFORMATION			D-57

 

ii

Exhibit D

 

LIST OF TABLES

 

Table No. 1 Selected Brazilian Economic Indicators			D-5
Table No. 2 Primary Balance of the Central Government			D-12
Table No. 3 Expenditures of the National Treasury by Function			D-13
Table No. 4 Principal 2022 Budget Assumptions			D-14
Table No. 5 Principal 2023 Budget Assumptions			D-14
Table No. 6 Federal Public Debt Profile			D-15
Table No. 7 Annual Borrowing Plan 2022			D-15
Table No. 8 Brazilian Population Distribution by Age and Gender			D-17
Table No. 9 Social Indicators			D-18
Table No. 10 GDP at Current Prices - Demand Side			D-27
Table No. 11 GDP at Current Prices - Supply Side			D-27
Table No. 12 Real Growth (or Decline) at Current Prices by Sector			D-28
Table No. 13 Annual Changes in Industry Production			D-28
Table No. 14 Broad National Consumer Price Index (IPCA)			D-32
Table No. 15 Percentage Increases/Decreases in Monetary Base and Money Supply			D-33
Table No. 16 Foreign Exchange Transactions			D-33
Table No. 17 Commercial Exchange Rates			D-33
Table No. 18 Market Activity on B3			D-36
Table No. 19 Balance of Payments			D-37
Table No. 20 Principal Foreign Trade Indicators			D-38
Table No. 21 Exports by Region (FOB Brazil)			D-38
Table No. 22 Brazilian Exports (FOB)			D-39
Table No. 23 Exports (FOB Brazil)			D-39
Table No. 24 Imports by Region (FOB Brazil)			D-41
Table No. 25 Brazilian Imports (FOB)			D-42
Table No. 26 Imports (FOB Brazil)			D-42
Table No. 27 Foreign Direct and Portfolio Investment in Brazil			D-43
Table No. 28 External Financing Needs			D-44
Table No. 29 International Reserves (International Liquidity Metric)			D-44
Table No. 30 International Reserves (Cash Metric)			D-44
Table No. 31 Public Sector Borrowing Requirements			D-45
Table No. 32 Public Sector Debt			D-51
Table No. 33 Federal Public Debt Indicators			D-52
Table No. 34 Federal Public Debt Results and Annual Borrowing Plan 2021			D-53
Table No. 35 External Public Debt Buyback Program			D-54
Table No. 36 External Federal Public Debt			D-54
Table No. 37 External Direct Debt of the Federal Government			D-57
Table No. 38 External Debt Guaranteed by the Federal Government			D-59
Table No. 39 Internal Securities Debt of the Republic			D-61

 

iii

INTRODUCTION

In this report, references to “dollars”, “U.S. Dollars”, “US$” and “$” are to United States dollars, and references to “Real”, “Reais” and “R$” are to Brazilian Reais. References herein to “nominal” data are to data expressed in Reais that have not been adjusted to inflation, and references to “real” data are to data expressed in Reais that have been adjusted to inflation. The fiscal year of the federal government of Brazil (the “Federal Government”) ends December 31 of each year. The fiscal year ended December 31, 2021, is referred to herein as “2021”, and other years are referred to in a similar manner. Tables herein may not add up due to rounding.

The information included herein reflects the most recent information available at the time of filing.

MAP OF BRAZIL

 

 

D-4

SUMMARY

The following is a summary of Brazil’s economic indicators for the period 2017–2021. The following summary does not purport to be complete and is qualified in its entirety by the more detailed information appearing elsewhere herein.

Table No. 1

Selected Brazilian Economic Indicators

 

		2017				2018				2019				2020				2021
Gross Domestic Product (“GDP”):
(in billions of current R$)		R$	6,585.5			R$	7,004.1			R$	7,389.1			R$	7,467.6			R$	8,679.5
(in US$ billions current prices) (1)		US$	2,063.2			US$	1,916.2			US$	1,877.3			US$	1,448.0			US$	1,608.8
Real GDP Growth (or decline) (2)			1.3	%			1.8	%			1.2	%			(3.9	%)			4.6	%
Population (million) (3)			207.7				208.5				210.1				211.8				213.3
GDP Per Capita (in US$ current prices)		US$	9,976.5			US$	9,190.7			US$	8,911.9			US$	6,838.1			US$	7,542.0
Unemployment Rate (4)			12.7	%			12.3	%			11.9	%			13.5	%			13.2	%
IPCA Rate (5)			3.0	%			3.8	%			4.3	%			4.5	%			10.1	%
IGP-DI Rate (6)			(0.4	%)			7.1	%			7.7	%			23.1	%			17.7	%
Nominal Exchange Rate Change (7)			1.5	%			17.1	%			4.0	%			28.9	%			7.4	%
Domestic Real Interest Rate (8)			6.8	%			2.6	%			1.6	%			(1.7	%)			(5.1	%)
Balance of Payments (in US$ billions)
Exports			218.0				239.5				225.8				210.7				284.0
Imports			160.7				196.1				199.3				178.3				247.6
Current Account			(22.0	)			(51.5	)			(65.0	)			(24.1	)			(27.9	)
Capital Account			0.4				0.4				0.4				0.3				0.2
Financial Account			(17.1	)			(52.3	)			(64.4	)			(12.5	)			(335.8	)
Reserve Assets			5.1				2.9				(26.1	)			(14.2	)			14.0
Total Official Reserves			382.0				387.0				366.9				362.0				363.7
Public Finance (% of GDP) (9)
Central Government Primary Balance (10)			1.8	%			1.7	%			1.2	%			10.0	%			0.4	%
Consolidated Public Sector Primary Balance (11)			1.7	%			1.6	%			0.9	%			9.4	%			-0.8	%
Federal Public Debt (in R$ billions)
Domestic Federal Public Debt (DFPD or DPMFi)		R$	3,435.5			R$	3,728.9			R$	4,083.2			R$	4,766.2			R$	5,348.9
External Federal Public Debt (EFPD or DPFe)		R$	123.8			R$	148.2			R$	165.7			R$	243.5			R$	264.7
Federal Public Debt as % of Nominal GDP			54.0	%			55.4	%			57.4	%			67.3	%			64.7	%
Total Federal Public Debt (in R$ billions) (12)		R$	3,559.3			R$	3,877.1			R$	4,248.9			R$	5,009.6			R$	5,613.7
General Government Gross and Net
General Government Gross Debt (GGGD or DBGG) (in R$ billions) (13)		R$	4,854.7			R$	5,272.0			R$	5,500.1			R$	6,615.8			R$	6,966.9
DBGG as % of GDP			73.7	%			75.3	%			74.3	%			88.8	%			80.3	%
Public Sector Net Debt (NPSD or DLSP) (in R$ billions) (14)		R$	3,382.9			R$	3,695.8			R$	4,041.8			R$	4,670.0			R$	4,966.9
DLSP as % of GDP			51.4	%			52.8	%			54.6	%			62.7	%			57.2	%

 

Note: Numbers may not total due to rounding

 

(1)	Converted into U.S. dollars based on the weighted average exchange rate for each applicable year, estimated as of December of each year.

(2)	Cumulative over four quarters per year.

(3)	Estimated.

(4)	Annual average unemployment rate.

(5)	Broad National Consumer Price Index (Índice de Preços ao Consumidor Amplo or “IPCA”), as reported by the National Bureau of Geography and Statistics (Fundação Instituto Brasileiro de Geografia e Estatística or “IBGE”)

(6)	The General Price Index-Domestic Supply (Índice Geral de Preços-Disponibilidade Interna or “IGP-DI”) is one of multiple inflation indicators used in Brazil (IGP-DI being one of the most widely used). The IGP-DI is calculated by the Getúlio Vargas Foundation, an independent research organization.

 

D-5

(7)	Year-over-Year percentage change of the nominal exchange rate: (+) depreciation or (-) appreciation of the Real against the U.S. Dollar (sell side).

(8)	“Domestic Real Interest Rate” represents the accumulated Selic rate (Sistema Especial de Liquidação e Custódia or “Selic”), adjusted to exclude effects of IPCA.

(9)	Calculated using the “below the line” financial method, with respect to changes in the public sector’s total net debt (domestic or external). Surpluses are represented by negative numbers and deficits are represented by positive numbers.

(10)	“Central Government” includes (i) the National Treasury (Secretaria do Tesouro Nacional); (ii) the Social Security System (Sistema da Previdência Social); and (iii) the Central Bank. “Primary Balance” represents revenues minus expenditures, excluding interest expenditures on public debt.

(11)

“Consolidated Public Sector” includes (i) the Central Government, Regional Governments (including state and municipal governments); and (ii) the state-owned enterprises, with the exception of Petróleo Brasileiro S.A.—Petrobras (“Petrobras”) and Centrais Elétricas Brasileiras S.A.—Eletrobras (“Eletrobras”). “Primary Balance” represents revenues minus expenditures, excluding interest expenditures on public debt.

(12)	Total Federal Public Debt, as reported by the National Treasury.

(13)	“General Government Gross Debt” (“General Government Gross Debt” or “DBGG”) defined as private- and public-sector financial debt of the federal, state and municipal governments, with the exception of (i) state-owned company debt (at all government levels); and (ii) Central Bank liabilities.

(14)

“Public Sector Net Debt” (“Public Sector Net Debt” or “DLSP”) refers to total liabilities of the non-financial public sector as deducted from public sector financial assets held by (i) non-financial private agents; (ii) public financial agents; and (iii) private financial agents. DLSP includes Central Bank assets and liabilities including international reserves and the monetary base.

Source: IBGE; Getúlio Vargas Foundation; Central Bank; National Treasury.

 

D-6

RECENT DEVELOPMENTS

COVID-19

As of July 4, 2022, Brazil had reported 32.5 million confirmed cases of the coronavirus commonly referred to as COVID-19, of which 672,033 were fatal (resulting in a 2.1% COVID-19 mortality rate in the country). Brazil has adopted several measures in response to the COVID-19 outbreak aimed at preventing mass contagion and overcrowding of Brazilian health service facilities, including, among other things, granting decision making authority to local governmental entities (i.e., states and municipalities) with respect to measures to be taken in response to the outbreak. Brazilian states and municipalities have taken extensive measures to limit the spread of the outbreak, including severe restrictions on business and economic activity.

As of July 4, 2022, 79.1% of the Brazilian population had completed the full COVID-19 vaccination cycle (two doses) and 86.12% of the population had received at least one dose of the COVID-19 vaccine. Vaccination for children under 12 years of age began in January 2022. As of July 4, 2022, 50.59% of the population had also received a third dose of the COVID-19 vaccine.

As of July 3, 2022, the Republic has received 69.5 million vaccine doses of the 354 million additional doses it expects to receive throughout the year.

The Republic has adopted several stimulus measures in reaction to the COVID-19 crisis. In 2021, the amount of expenditures related to such measures was R$121.4 billion. In 2022, an additional R$30.5 billion are forecasted to be spent on COVID-19 related measures, of which R$16.8 billion have already been spent as of June 30, 2022. These measures, as currently approved or proposed, include, among other things, (i) measures to provide financial assistance to individuals and companies, (ii) the allocation of resources for medical treatment for our citizens and investing in appropriate protective equipment, and (iii) the implementation of a plan for the purchase and administration of COVID-19 vaccines.

On April 13, 2021, the Senate initiated a parliamentary commission of inquiry (the “COVID-19 CPI”) to investigate allegations of misconduct in the public response to the COVID-19 pandemic (the “CPI Investigations”). The COVID-19 CPI investigations were conducted between April and October 2021 and focused on actions and omissions by the Federal Government and the mismanagement and misappropriation of federal resources by certain states and municipalities in addressing the COVID-19 pandemic. The investigations covered, among others, (i) the worsening of the sanitary crisis in the State of Amazonas due to the lack of oxygen supply for hospitalized patients resulting from mismanagement by the federal and state governments, (ii) alleged illicit acts, such as irregularities in contracts, fraud in bids, overbilling, and misappropriation of public funds by the Federal Government, (iii) the response of the Federal Government to the COVID-19 pandemic, including alleged neglect and delays in obtaining vaccines and adopting preventive measures, allegedly resulting in disproportionate death rates and social and economic impact on minorities in Brazil, (iv) the support and use of unproven drugs in response to the COVID-19 pandemic, and (v) the spread of false information relating to the COVID-19 pandemic, including by means of official media and public declarations by officials.

The final report of the COVID-19 CPI recommended the issuance of indictments against several public officials, including President Jair Bolsonaro. The report calls for criminal charges against President Jair Bolsonaro for deaths resulting from lack of action and mismanagement in handling the COVID-19 pandemic, allowing the virus to spread, among other crimes, such as charlatanism, forgery of private documents, and irregular use of public funds in the negotiation of vaccine Covaxin.

The COVID-19 CPI report also suggested changes to legislation focusing on, among others, (i) harshening of penalties for spread of false information and enhancing regulation over social media and the internet to identify and deter false information and fake profiles, (ii) increasing penalties for crimes committed by public officials in response to pandemics and other public crisis, and (iii) assuring social security protections to minorities, such as orphans of victims of COVID-19 and persons with continued symptoms. As of July 4, 2022, the office of the Brazilian public prosecutors (the “Public Prosecutors Office”) has opened 13 investigations based on the findings of the COVID-19 CPI report. The investigations involve (i) former Minister of Health Eduardo Pazuello, mainly relating to alleged neglect and delay in negotiating vaccines and the decision to cancel the negotiation of the CoronaVac vaccine, (ii) former Secretary Fabio Wajngarten, for alleged corruption, (iii) former Secretary Mayra Pinheiro, for the measures taken in response to the oxygen crisis in the State of Amazonas, among others. There are no investigations currently involving President Jair Bolsonaro or other federal officials in office as of the date of this report.

 

D-7

THE FEDERATIVE REPUBLIC OF BRAZIL

Political Developments

Corruption Investigations

On January 27, 2022, the Federal Court of the State of Brasília granted a motion to close pending criminal proceedings against former President Luiz Inácio Lula da Silva relating to an apartment located in Guarujá, São Paulo (the “Triplex Case”), under which former President Lula was accused of the charges of money laundering and active and passive corruption within the scope of Car Wash Operation (Operação Lava Jato). The Triplex Case was dismissed due to the statute of limitations applicable to former President Lula’s age (76 years).

On March 28, 2022, the Minister of Education Milton Ribeiro resigned after the Federal Police (Policia Federal—PF) initiated an inquiry to investigate alleged favoritism in the release of funds from the National Fund for the Development of Education (FNDE). On June 22, 2022, the Federal Police initiated Operation Paid Access (Operação Acesso Pago), which culminated in an investigation against former Minister Ribeiro. This investigation is still ongoing. On June 28, 2022, a parliamentary commission of inquiry (CPI) was also installed by the Senate to investigate the case.

Cabinet Changes

On March 30, 2022, Victor Godoy took office as Ministry of Education, replacing Milton Ribeiro.

On March 31, 2022, President Bolsonaro published a series of decrees to dismiss and replace certain ministers and secretaries of state, upon their request, to allow them to run for public office in the 2022 elections, which will take place in the second semester of 2022. Under the Ineligibility Law (Lei de Inegibilidade), ministers and secretaries of state who want to run for office in the elections are required to leave their positions at least six months in advance of the elections. Following the departure of such ministers and secretaries of state, on March 31, 2022:

 

•

Marcelo Sampaio took office as Ministry of Infrastructure, replacing Tarcísio Gomes de Freitas.

 

•

Marcos Montes Cordeiro took office as Ministry of Agriculture, Livestock and Supply, replacing Tereza Cristina.

 

•

Ronaldo Vieira Bento took office as Ministry of Citizenship, replacing João Roma.

 

•

José Carlos Oliveira took office as Ministry of Labor and Social Security, replacing Onyx Lorenzoni.

 

•

Carlos Alberto Gomes de Brito took office as Ministry of Tourism, replacing Gilson Machado.

 

•

Cristiane Rodrigues Britto took office as Ministry of Woman, Family and Human Rights, replacing Damares Alves.

 

•

Paulo César Rezende Alvim took office as Ministry of Science, Technology and Innovation, replacing Marcos César Pontes.

 

•

Daniel de Oliveira Duarte Ferreira took office as Ministry of Regional Development, replacing Rogério Marinho.

 

•

Célio Faria Júnior took office as Secretariat for the Presidency of the Government, replacing Flávia Carolina Péres.

 

•

Paulo Sérgio Nogueira de Oliveira took office as Ministry of Defense, replacing Walter Braga Netto.

In addition, on May 11, 2022, Adolfo Sachsida took office as Ministry of Mines and Energy, replacing Bento Albuquerque.

2022 Federal and State Elections

In the second semester of 2022, federal and state elections will be held in Brazil, including election for president, state governors and federal and state representatives. The first round of elections will take place on October 2, 2022. With respect to presidential and governors’ elections, in the event that none of the candidates for a specific office obtains the absolute majority of votes in the first round, a run-off election for such office will be held on October 30, 2022 with the two candidates receiving more votes in the first round. Political parties were required to register candidacies by August 15, 2022.

Legislative Reforms

On January 7, 2022, a law establishing a new regulatory framework for fluvial transportation in Brazil went into effect. This new law seeks to (i) diversify Brazil’s transportation services through increased incentives, (ii) encourage further competition in transportation services, (iii) expand Brazil’s fleet for navigation, (iv) stimulate the development of the national naval industry, and (v) provide incentives for investments from operations in port facilities.

 

D-8

Employment and Labor

Employment Levels

From January 1, 2022, to May 31, 2022 formal employment increased by 2.58%, with the creation of 1,051,503 jobs, compared to an increase of 3.06% from January 1, 2021, to May 31, 2021 with the creation of 1,161,199 jobs in the period.

In the first quarter of 2022, the unemployment rate in Brazil was 11.10%, unchanged compared to the fourth quarter of 2021 and a decrease of 3.8% compared to the first quarter of 2021.

Wages

As of January 1, 2022, the minimum monthly wage for 2022 was set at R$1,212.00, representing an increase of 10.18% compared to the 2021 minimum monthly wage of R$1,100.00.

The budgetary law for 2022 (“2022 Budgetary Guidelines”) estimated a minimum monthly wage of R$1,147.00, considering the National Consumer Price Index (Índice Nacional de Preços ao Consumidor or “INPC”) at 3.50%. However, in light of an effective INPC of 10.16% in 2021, on December 30, 2021, the Federal Government enacted a provisional measure to increase the minimum monthly wage to R$1,212.00, pursuant to the Constitution of the Republic, with the aim of avoiding loss in purchase power.

The minimum monthly wage for 2023 is currently forecasted at R$1,294.00, representing an increase of 6.77% compared to the 2022 minimum monthly wage of R$1,212.00.

Social Security

At May 31, 2022, (i) the monthly benefits accumulated in the preceding 12-month period paid by the Brazilian Social Security System increased by 5.77% compared to the immediately prior 12-month period; and (ii) the Brazilian Social Security System payments increased by 30.35%, when compared to May 31, 2021 (in real terms). This result is mainly due to the advance of the 13^th salary of retirees and pensioners in May 2022.

Environment

In September 2019, the Attorney General’s Office (AGU) created a “Task Force in Defense of the Amazon” (Força-Tarefa de Defesa da Amazônia) to act on lawsuits aimed at defending priority public environmental policies of the Federal Government, the Brazilian Institute for the Environment and Renewable Natural Resources (IBAMA) and the Chico Mendes Institute for Conservation of Biodiversity (ICMBio) in the states that make up the Legal Amazon. In March 2022, the AGU announce that the Task Force in Defense of the Amazon has been extended until at least March 2023.

On June 28, 2021, President Bolsonaro authorized Brazil’s Armed Forces to intervene in the Amazon rainforest for the period of June 28, 2021 to August 31, 2021 to fight and prevent environmental crimes, including illegal deforestation. The Armed Forces will be working in coordination and collaboration with the National Counsel of Legal Amazon (Conselho Nacional da Amazônia Legal).

On March 25, 2022, the Ministry of the Environment and the Ministry of the of Justice and Public Security announced operation “Guardians of the Deforestation Biome” (Guardiões do Bioma Desmatamento). Focusing on combating deforestation and illegal fires in the Amazon region, the action will mobilize 1,200 agents from different public bodies and forces, including the Federal Police (Polícia Federal or PF), the Federal Highway Police (Polícia Ferroviaria Nacional or PRF), the National Public Security Force (Força Nacional de Segurança Pública), IBAMA and ICMBio, with the support of the public security forces of the states.

THE BRAZILIAN ECONOMY

Economy in 2022

In 2022, the Brazilian economy continues to be adversely affected by COVID-19, but is showing signs of recovery. See “Recent Developments—COVID-19.” After a rebound in economic activity, Brazil is currently experiencing supply shocks that are adversely affecting the entire economy, which can be explained mostly by external supply chain challenges due to the pandemic and the military conflict between Russia and Ukraine, new waves of infection by COVID-19 and the rise in local and global inflation.

 

D-9

Gross Domestic Product

In the first quarter of 2022, GDP increased by 1.00% compared to the fourth quarter of 2021. Compared to the first quarter of 2021, GDP increased by 4.70% in the first quarter of 2022 measured on a cumulative 12-month basis. The GDP results from the first quarter of 2022 were mainly influenced by electricity and gas, water, sewage, waste management activities, which increased by 6.6%, and other activities in service sectors, which increased by 2.2%, in each case compared to the fourth quarter of 2021.

Principal Sectors of the Economy

Public Utilities

Electricity prices are regulated by the Brazilian Electricity Regulatory Agency (Agência Nacional de Energia Elétrica or “ANEEL”) following a tariff flag system for electricity generation. The green, yellow, red flags (levels 1 and 2) indicate whether the energy will cost more or less depending on the generation conditions. The green flag corresponds to regular tariff price charged under regular hydrological conditions, and the yellow and red flags result in additional charges on top of regular tariffs, in case of moderate or severe water scarcity conditions. From September 1, 2021 through April 30, 2022, a red flag (also known as water scarcity flag) tariff was in place and progressively increasing energy tariffs by R$14.20 per 100kWh consumed in September 2021, an increase of 48.79% compared to the energy tariffs in July 2021. The adoption of the red flag was motivated by an increase in energy costs incurred by distributors due to the hydrological crisis experienced during this period in Brazil.

Following favorable hydrological conditions in recent months, on April 16, 2022, ANEEL replaced the red flag tariff with the green flag tariff, and from May 2022 onwards the additional charges were no longer imposed on electricity bills. According to the most recent forecast released by the Ministry of Mines and Energy, the expectation is that the green flag tariff will remain in force to all consumers until the end of the current year.

Consumers benefiting from the Electric Energy Social Tariff were already exempt from the red flag charges, paying the regular green flag tariff, published monthly by ANEEL. Similarly, residents of remote areas which are not connected to the National Integrated System, such as the state of Roraima, are exempt from yellow and red flags charges.

Privatizations

In 2022, the Investment Partnership Program (Programa de Parcerias de Investimentos or “PPI”) is expected to include 153 active projects, totaling R$389.3 billion in investments, including 26 airports, 10 roads and 4 railways concessions. In addition, the Federal Government will assist states and municipalities in carrying out several other projects involving water supply and waste disposal concessions.

On July 12, 2021, the law authorizing the privatization of the state-owned electricity holding company Eletrobras (the “Eletrobras Privatization Law”) went into effect. Eletrobras is considered the largest energy company in Latin America. The privatization aims to enable the company to improve its investment capacity in the generation and transmission of electricity and contribute to the development of the Brazilian energy sector. On February 15, 2022, the privatization was approved by the Federal Audit Court (Tribunal de Contas da Uniao or “TCU”) and on February 22, 2022 the shareholders of Eletrobras approved the privatization model proposed by the company’s management, which involved a public offering of the company’s share in Brazil and abroad to reduce the Federal Government’s participation in the voting capital to a percentage equal or lower than 45%. On May 18, 2022, the Federal Audit Court also approved, by 7 votes to 1, the privatization model of Eletrobras.

On June 9, 2022, Eletrobras priced its public offering of 697,476,856 common shares, including 9,783,100 American Depositary Shares (“ADSs”), without taking into consideration the overallotment option. The price per share to the public was set at R$42.00, resulting in an aggregate price of R$29,294,027,952.00. The ADSs were offered and sold to the public at a price of U.S.$8.63 per ADS (including an ADS issuance fee of U.S.$0.05 per ADS). In addition, BNDES Participações S.A. – BNDESPAR, as shareholder of Eletrobras, conducted a secondary offering of 69,801,516 shares owned by BNDESPAR at the same price as the primary offering. Settlement of the offerings occurred on June 14, 2022 (except for the common shares subject to the over-allotment option, which if exercised is expected to settle on July 14, 2022). As a result of these offerings, the Federal Government’s share in Eletrobras voting capital declined from 72% to 45%, before the potential exercise of the overallotment option.

 

D-10

FINANCIAL SYSTEM

Monetary Policy and Money Supply

Selic

The Selic interest rate is the is the main monetary policy instrument available to the Central Bank. The monetary policy transmission mechanisms are the channels through which changes in the Selic affect the behavior of other economic variables, mainly prices and output. Monetary policy affects prices in the economy by influencing (i) the decision between consumption and investment by families and companies, (ii) the exchange rate, (iii) the price of assets, and (iv) credit availability, among others.

When the Selic rate rises, real interest rates also tend to rise. The increase in the real interest rate, in turn, can lead to a decrease in investments by companies and a decrease in consumption by families - which, in turn, tends to reduce the demand for goods and services in the economy, contributing to for the reduction of inflation.

On June 15 2022, the Central Bank Monetary Policy Committee (Comitê de Política Monetária or “COPOM”) increased the Selic interest rate to 13.25% per annum.

Inflation

From January 1, 2022, to May 31, 2022 the IPCA increased by 4.7%. With respect to the 12-month period ended on May 31, 2022, the index increased 11.73%, 0.40% below the rate of 12.13% registered in the 12 immediately previous months.

COPOM publishes a number of inflation projections based on different hypothetical scenarios. In its baseline scenario, assuming an interest rate path extracted from the Focus survey (a survey of market expectations for economic indicators carried out by the Banco Central do Brasil or “BCB”) and exchange rate starting at R$4.95/US$1 and evolving according to the purchase power parity (PPP), inflation projections stand at 7.3% for 2022 and 3.4% for 2023. This scenario assumes a path for the Selic rate that ends 2022 at 13.25% per annum and decreases to 9.25% per annum in 2023. In this scenario, inflation projections for administered prices are 6.4% for 2022 and 5.7% for 2023.

For 2023, the National Monetary Council (Conselho Monetário Nacional - “CMN”) set the inflation target at 3.25% with a tolerance range of plus or minus 1.5%.

Foreign Exchange Rates

Foreign Exchange Rates

The Brazilian Real-U.S. Dollar exchange rate, as published by the Central Bank, was R$5.3038 to US$1.00 (sell side) on July 4, 2022.

Financial Institutions

BNDES

In April 2022, the CMN increased the long-term interest rate used for loans granted by the Brazilian National Development Bank (Banco Nacional do Desenvolvimento Econômico e Social or “BNDES”) (Taxa de Juros de Longo Prazo or “TJLP”) from 6.02% to 6.82% per annum for the second quarter of 2022. As of June 2022, the long-term rate (Taxa de Longo Prazo or “TLP”) applicable for new BNDES loans was IPCA, plus 5.01% per annum.

Banking Supervision

Loan Loss Reserves

As of February 2022, credit operations in arrears for over 90 days were at 2.52%, a 0.06% increase compared to January 2022 (2.46%). As of February 2022, the level of credit operations in arrears with respect to credits granted to families was 3.33%, a 0.12% increase compared to January 2022 (3.21%). Arrears of credits provided to legal entities had a slight decrease in February 2022, when compared to January 2022 (from 1.39% to 1.37%).

 

D-11

BALANCE OF PAYMENTS

As of February 28, 2022, the current account registered a deficit of US$26.10 billion (1.59% of GDP) for the preceding 12-month period. For the same period, (i) the capital account registered a surplus of approximately US$234.50 million, (ii) the financial account registered a deficit of US$32.57 billion and (iii) foreign direct investment amounted to US$50.68 billion (3.09% of GDP).

As of April 26, 2022, international reserves volume amounted to US$ 346.85 billion (22.12% of GDP).

PUBLIC FINANCE

The following table sets forth revenues and expenditures of the Federal Government from 2018 through 2021 and the budgeted amounts for 2022.

Table No. 2

Primary Balance of the Central Government ⁽¹⁾

(In Billions of Reais)

 

		2018				2019				2020				2021				2022 Budget(5)
1 – Total Revenues			1,812.5				1,917.5				1,666.4				2,026.6				2,167.1
1.1 – RFB Revenues (2)			1,102.9				1,111.2				1,021.6				1,255.7				1,332.2
1.2 – Fiscal Incentives			(0.0	)			(0.1	)			(0.2	)			(0.2	)			(0.1	)
1.3 – Social Security Net Revenues			475.9				484.7				458.9				483.8				531.5
1.4 – Non- RFB Revenues			233.7				321.7				186.0				287.3				303.5
2 – Transfers by Sharing Revenue			312.7				338.2				299.7				370.8				444.71
3 – Total Net Revenue			1,499.8				1,579.3				1,366.7				1,655.8				1,722.4
4 – Total Expenditures			1,645.1				1,690.1				2,216.0				1,693.8				1,787.9
4.1 – Social Security Benefits			713.5				734.9				755.8				746.0				788.7
4.2 – Personnel and Social Charges			362.8				367.3				365.2				345.6				341.3
4.3 – Other Mandatory Expenditures			245.4				229.3				820.8				321.8				279.5
4.4 – Discretionary expenditures – All Branches			323.3				358.6				274.2				280.4				378.3
5 – Brazilian Sovereign Wealth Fund (FSB)			0.0				0.0				0.0				0.0				0.0
6 – Primary Balance (3)			(145.2	)			(110.8	)			(849.3	)			(38.0	)			(65.5	)
7 – Methodological Adjustment			8.2				8.0				2.2				(0.4	)			—
8 – Statistical Discrepancy			(3.2	)			(0.6	)			(4.5	)			(0.5	)			—
9 – Central Government Primary Balance (4)			(140.2	)			(103.4	)			(851.5	)			(38.8	)			—
10 – Nominal Interest			(378.2	)			(364.0	)			(303.7	)			(424.5	)			—
11 – Central Government Nominal Balance (4)			(518.5	)			(467.4	)			(1,155.2	)			(463.4	)			—

 

Note:

Numbers may not total due to rounding.

 

(1)	Consolidated accounts of (i) the National Treasury; (ii) Social Security System; and (iii) the Central Bank.

(2)	Brazilian Federal Tax Authority (RFB).

(3)	Calculated using the “above the line” method, with respect to the difference between the revenues and expenditures of the public sector.

(4)	Calculated using the “below the line” financial method, with respect to changes in public sector’s total net debt (domestic or external). Surpluses are represented by positive numbers and deficits are represented by negative numbers.

(5)	Estimates in 2022 Budget Guidelines and reviewed by the Primary Revenue and Expenditure Report (May 2022).

Source: National Treasury Secretariat.

The following table sets forth the expenditures of the Federal Government by function for 2018 through 2021 and the budgeted amounts for 2022. The figures in the table below are not directly comparable to those set forth in Table No. 2 above, entitled “Primary Balance of the Central Government”, given that the expenditures set forth in Table No. 2 were calculated in accordance with the International Monetary Fund (“IMF”) methodology, which does not include, among other things, debt service expenditures and certain financial investments (which, in turn, are accounted for in the numbers set forth in Table No. 3 below).

 

D-12

Table No. 3

Expenditures of the National Treasury by Function

(In Millions of Reais)

 

		2018				2019				2020				2021				2022 Budget (1)
Legislative			6,373.8				6,573.1				6,305.4				6,428.5				9,435.54
Judiciary			31,068.7				32,621.9				31,448.0				31,549.4				42,968.46
Essential to Justice			6,040.1				6,426.9				6,635.8				6,663.2				8,803.79
Administration and Planning			25,988.3				22,978.8				22,229.0				22,503.6				26,799.38
National Defense			71,058.7				78,465.7				76,588.4				78,191.7				85,157.51
Public Security			8,216.4				8,449.2				9,872.1				9,613.5				13,074.18
Foreign Affairs			3,002.1				3,093.7				3,647.0				3,652.3				4,205.06
Social Assistance			87,977.1				94,914.7				412,348.8				161,127.0				170,387.12
Social Security			681,663.7				725,885.6				764,238.7				804,532.0				883,604.26
Health			107,759.5				113,907.8				151,122.6				161,392.8				149,089.81
Labor			70,861.2				72,480.8				75,874.9				65,833.2				92,634.34
Education			90,927.8				88,224.8				82,166.2				90,093.9				124,412.58
Culture			960.2				715.7				581.2				584.9				1,724.36
Citizenship Rights			929.7				828.9				885.8				597.6				1,217.17
Urban Planning			1,648.1				1,383.2				1,270.6				1,123.5				7,472.68
Housing			5.7				11.7				2.0				2.1				34.10
Sanitation			558.6				454.2				825.7				445.5				342.23
Environmental Management			3,471.0				3,158.2				3,433.2				2,894.1				3,783.39
Science and Technology			6,194.5				6,278.8				6,011.3				4,728.7				13,458.71
Agriculture			15,151.6				14,355.2				12,438.8				16,036.7				25,380.31
Agricultural Organization			1,571.4				1,345.9				1,287.8				983.3				2,064.42
Industry			1,917.5				1,610.1				1,458.4				1,471.1				1,567.83
Commerce and Services			2,645.5				1,782.6				6,908.7				1,683.3				4,428.07
Communications			1,089.0				1,122.6				1,491.0				1,961.2				3,668.79
Energy			1,753.1				2,261.5				1,223.9				1,568.1				1,689.33
Transportation			11,352.9				8,530.8				7,756.9				6,432.2				19,907.83
Sports and Leisure			286.9				159.3				101.7				213.9				978.09
Special Charges (2)			948,277.2				957,429.6				1,151,227.9				1,009,336.7				2,980,717.27
Contingency Reserve (3)			—				—				—				—				51,018.16
Subtotal			2,188,750.3				2,255,451.5				2,839,381.7				2,491,644.2				4,729,990.69
Refinancing Charges			450,198.3				476,775.2				723,323.4				1,399,617.9
Total			2,638,948.7				2,732,226.7				3,562,705.1				3,891,262.1				4,729,990.69

 

(1)	Estimates.

(2)	Special Charges includes expenses that cannot be associated with goods or services generated in the functioning of the Federal Government, including with respect to debt service, debt refinancing, reimbursements, indemnifications, and other similar expenses.

(3)	The Contingency Reserve is outlined in the Annual Budget (Lei Orçamentária Anual) and may be used for additional lines of credit related to contingent liabilities, unexpected fiscal events, and other unexpected events or risks.

Source: Ministry of the Economy /National Treasury Secretariat and Federal Budget Secretariat.

2022 Budget

The 2022 Budgetary Guidelines set a nominal primary deficit of R$177.49 billion (2.00% of estimated GDP) for the consolidated public sector in 2022. The macroeconomic parameters contemplated by the bill anticipate inflation at 3.50% and a projected GDP growth of 2.50% for 2022. The 2022 Budgetary Guidelines were sent to Congress for approval on April 15, 2021 and were enacted on August 20, 2021. On December 21, 2022, the 2022 budget law was approved by Congress and was enacted on January 21, 2022 (the “2022 Budget Law”).

The following table sets forth the assumptions that were included in the 2022 Budget Law. There is no assurance that such assumptions will prevail, and it is likely that such outcomes will vary.

 

D-13

Table No. 4

Principal 2022 Budget Assumptions

 

		As of May, 2022
Gross Domestic Product
Nominal GDP (billions of Reais)			9,710.92
Real GDP Growth			1.50	%
Inflation
Domestic Inflation (IPCA)			7.90	%

 

Source: Federal Budget Secretariat (SOF) and Economic Policy Secretariat (SPE).

2023 Budget

The budgetary law proposal for 2023 (the “2023 Budgetary Guidelines Proposal” or “PLDO 2023”), sent to the National Congress on April 15, 2022, set a nominal primary deficit of R$69.01 billion (0.66% of estimated GDP) for the consolidated public sector for 2023. The macroeconomic parameters contemplated by the bill anticipate inflation at 3.3% and a projected GDP growth of 2.50% for 2023.

Table No. 5

Principal 2023 Budget Assumptions

 

		As of April, 2022
Gross Domestic Product
Nominal GDP (billions of Reais)			10,470.3
Real GDP Growth			2.50	%
Inflation
Domestic Inflation (IPCA)			3.30	%

 

Source: Federal Budget Secretariat (SOF) and Economic Policy Secretariat (SPE).

Fiscal Balance

In April 2022, the consolidated public sector registered a primary surplus of R$38.88 billion. For the 12-month period ended April 30, 2022, the accumulated balance registered a surplus of R$137.38 billion (1.52% of GDP).

In May 2022, the Brazilian Social Security System registered a deficit of R$46.95 billion, 53.28% higher (in real terms) than the deficit registered in May 2021. For the 12-month period ended May 31, 2022, the deficit of the Brazilian Social Security System totaled R$286.41 billion (in real terms). At current market prices, the deficit accumulated in the preceding 12-month period ended on May 31, 2022, reached R$270.83 billion.

PUBLIC DEBT

Public Debt Indicators

Public Sector Net Debt

As of April 20, 2022, Public Sector Net Debt was R$5,227.62 billion (57.86% of GDP) compared to R$4,655.46 billion (59.36%% of GDP) as of April 30, 2021.

General Government Gross Debt

As of April 30, 2022, General Government Gross Debt was R$7,075.13 billion (78.31% of GDP) compared to R$6,665.28 billion (84.99% of GDP) as of April 30, 2021.

Federal Public Debt

The following table presents Brazil’s Federal Public Debt profile as of May 31, 2022.

 

D-14

Table No. 6

Federal Public Debt Profile

 

		May/2022				May/2022				Abr/2022				Abr/2022				May/2021				May/2021
							%								%								%
Federal Public Debt (R$ Billion)		R$	5,702.23				100.0	%		R$	5,589.95				100.0	%		R$	5,171.23				100.0	%
Domestic		R$	5,475.96				96.0	%		R$	5,359.76				95.9	%		R$	4,940.49				95.5	%
Fixed-rate		R$	1,551.80				27.2	%		R$	1,507.19				27.0	%		R$	1,704.00				33.0	%
Inflation-linked		R$	1,813.48				31.8	%		R$	1,790.23				32.0	%		R$	1,393.79				27.0	%
Selic rate		R$	2,098.37				36.8	%		R$	2,049.16				36.7	%		R$	1,830.27				35.4	%
FX		R$	238.57				4.2	%		R$	243.37				4.4	%		R$	243.17				4.7	%
Others			—				0.0	%			—				0.0	%			—				0.0	%
External (R$ Billion)		R$	226.27				4.0	%		R$	230.19				4.1	%		R$	230.75				4.5	%
Maturity Profile
Average Maturity (years)			3.9								4.0								3.9
Maturing in 12 months (R$ Billion)		R$	1,332.5							R$	1,144.5							R$	1,185.6
Maturing in 12 months (%)			23.4	%							20.5	%							22.9	%

 

Source: National Treasury.

On January 26, 2022, the National Treasury released an Annual Borrowing Plan for 2022.

Table No. 7

Annual Borrowing Plan 2022⁽¹⁾

 

		Limits for 2022
		Minimum				Maximum
Stock of Federal Public Debt (R$ Billion)
Federal Public Debt			6,000.0				6,400.0
Composition—%
Fixed Rate			24.0				28.0
Inflation Linked			27.0				31.0
Floating Rate			38.0				42.0
Exchange Rate			3.0				7.0
Maturity Profile
% Maturing in 12 months			19.0				23.0
Average Maturity (years)			3.8				4.2

 

(1)	As published on January 26, 2022.

Source: National Treasury.

Public Debt Management

Golden Rule

Based on the 2023 Budgetary Guidelines Proposal, budget execution is expect to be in compliance with the Golden Rule (as defined below). However, given the expected fiscal scenario, the Federal Government will be required to constantly monitor budget execution, with the possibility that it will need to resort to credit operations in an amount greater than capital expenditures, since the margins projected are only slightly positive of R$ 17.35 billion.

As of May 20, 2022, the budget execution is within the Golden Rule margin, in the amount of R$ 15.7 billion. For additional information on the Golden Rule, please refer to “Golden Rule” in the “Public Debt” section.

 

D-15

Internal Public Debt

Internal Public Debt Levels

In accordance with the fiscal consolidation program promoted by the Federal Government, new BNDES Early Repayments were settled in 2022, totaling 17.31 billion, which resulted in total payments, including regular payments, of R$22.66 billion as of June 13, 2022. The proceeds of BNDES Early Repayments will be used by the National Treasury exclusively for public debt relief and compliance with the Golden Rule.

Regional Public Debt (State and Municipal)

Federal Government Guarantees

As of April 30, 2022, the Federal Government had paid a total of R$44.54 billion in liabilities incurred by states and municipalities. The largest payments were attributed to (i) the State of Rio de Janeiro (R$27.34 billion), pursuant to the Special Recovery Regime (as defined below), (ii) the State of Minas Gerais (R$11.43 billion), (iii) the State of Goiás (R$3.15 billion), (iv) the State of Rio Grande do Norte (R$460.17 million), (v) the State of Amapá (R$366.76 million), and (vi) the State of Pernambuco (R$354.85 million). The Federal Government is currently prevented by the Federal Supreme Court (Supremo Tribunal Federal or the “STF”) from recovering for any guarantees granted pursuant to the Special Recovery Regime. For more information on Federal Government guarantees, please refer to “Special Recovery Regime” in the “Public Debt” section.

Rating Agencies

In April 2022, Moody’s confirmed Brazil’s long term foreign currency sovereign credit rating at Ba2, maintaining a stable outlook. In June 2022, Standard & Poor’s confirmed Brazil’s long term foreign currency sovereign credit rating at BB-/B, maintaining a stable outlook.

 

D-16

THE FEDERATIVE REPUBLIC OF BRAZIL

Geography and Population

Brazil is the fifth largest country in the world and occupies nearly half of the land area of South America, sharing borders with every country in South America except for Chile and Ecuador. Brazil is divided into 26 states and the Federal District, where the country’s capital, Brasília, is located. Brazil’s official language is Portuguese.

As of December 31, 2021, Brazil’s estimated population was 213.3 million.

According to the most recent demographic census conducted from August to October 2010, the average age of the Brazilian population was 32.3 years. The next census, which was scheduled to be held from August through October 2020, was postponed due to the COVID-19 pandemic, and will be held from August through October 2022.The following table sets forth the age distribution of the Brazilian population as of 2010.

Table No. 8

Brazilian Population Distribution by Age and Gender

 

Age		Number of Men				Percentage of Men				Number of Women				Percentage of Women
0-4 years			7,016,987				3.7	%			6,779,172				3.6	%
5-9 years			7,624,144				4.0	%			7,345,231				3.9	%
10-14 years			8,725,413				4.6	%			8,441,348				4.4	%
15-19 years			8,558,868				4.5	%			8,432,002				4.4	%
20-24 years			8,630,227				4.5	%			8,614,963				4.5	%
25-29 years			8,460,995				4.4	%			8,643,418				4.5	%
30-34 years			7,717,657				4.0	%			8,026,855				4.2	%
35-39 years			6,766,665				3.5	%			7,121,916				3.7	%
40-44 years			6,320,570				3.3	%			6,688,797				3.5	%
45-49 years			5,692,013				3.0	%			6,141,338				3.2	%
50-54 years			4,834,995				2.5	%			5,305,407				2.8	%
55-59 years			3,902,344				2.0	%			4,373,875				2.3	%
60-64 years			3,041,034				1.6	%			3,468,085				1.8	%
65-69 years			2,224,065				1.2	%			2,616,745				1.4	%
70-74 years			1,667,373				0.9	%			2,074,264				1.1	%
75-79 years			1,090,518				0.6	%			1,472,930				0.8	%
80-84 years			668,623				0.4	%			998,349				0.5	%
85-89 years			310,759				0.2	%			508,724				0.3	%
90-94 years			114,964				0.1	%			211,595				0.1	%
95-99 years			31,529				0.0	%			66,806				0.0	%
Over 100 years			7,247				0.0	%			16,989				0.0	%
Total Brazil			190,755,799

 

Source: IBGE.

According to the United Nations’ Human Development Report Office, over the past three decades, Brazil has made significant progress in improving social welfare. From 1990 to 2020, (i) life expectancy increased by 14.7% from 66.3 years in 1990 to 76.1 years in 2020; and (ii) infant mortality decreased by more than 75% from 52.6 per 1,000 live births in 1990 to 13.1per 1,000 live births in 2020.

 

D-17

According to the World Bank, real GDP per capita adjusted for purchasing power parity rose by approximately 136% from US$6,836.15 in 1990 to US$16,160.65 in 2021. In addition, the reduction in inflation under the Federal Government’s stabilization program, the Plano Real, and the consequent reduction in the rate of erosion of purchasing power have improved the social welfare of many lower-income Brazilians.

The following table sets forth comparative GDP per capita figures and other selected comparative social indicators.

Table No. 9

Social Indicators

 

		Brazil				Chile				Colombia				Mexico				U.S.
Real GDP per Capita (1)		$	14,835.4			$	25,110.2			$	14,931.1			$	18,444.1			$	63,593.4
Life Expectancy At Birth (Years) (2)			76.1				80.3				77.5				75.1				78.9
Infant Mortality Rate (Per 1,000 Births) (2)			13.1				5.8				11.4				11.8				5.4
Adult literacy rate (3)			93.2	%			96.4	%			95.6	%			95.3	%			n.a.

 

(1)

GDP per capita estimates here are derived from purchasing power parity (PPP) calculations with current international dollars. PPP GDP is gross domestic product converted to international dollars using purchasing power parity rates. An international dollar has the same purchasing power over GDP as the U.S. dollar has in the United States. 2020 values.

(2)	Data refers to the most recent year available: 2020

(3)	Data refers to the most recent year available (2020 for Colombia and Mexico, 2018 for Brazil, and 2017 for Chile).

Source: World Bank

Form of Government

Brazil is a democratic federative republic. Its Constitution, enacted in 1988, grants broad powers to the Federal Government. Brazil’s 26 states are designated as autonomous entities within the federative union and have all powers that the Constitution does not preempt. The Constitution reserves to the Federal Government the exclusive power to legislate in certain areas, such as monetary systems, foreign affairs and trade, social security and national defense.

The Government

The Constitution provides for three independent branches of government: an executive branch, a bicameral legislative branch, and a judicial branch.

The executive branch is headed by the president, who is elected by direct vote for a term of four years and may only be re-elected for one consecutive term. The President’s powers include appointing ministers and key executives in selected administrative positions. The president may also issue decrees subject to National Congress confirmation (medidas provisórias) for a period of 60 days, extendable for a single period of 60 days, with the same scope and effect as legislation enacted by the National Congress. If confirmed by the National Congress, such decrees are enacted as law. Decrees subject to National Congress confirmation may not be used for certain matters, such as implementation of multi-year plans and budgets, the seizure of financial or other assets and any matters that the Constitution specifically requires National Congress to regulate through law.

The legislative branch of the Federal Government consists of a bicameral National Congress composed of the Senate and the Chamber of Deputies. The Senate is composed of 81 senators, elected for staggered eight-year terms. Each state and the Federal District may elect three senators. The Chamber of Deputies has 513 deputies, elected for concurrent four-year terms. The number of deputies from each state is proportional to the size of its population, with each state entitled to a minimum of eight deputies and a maximum of 70 deputies, regardless of population size.

Judicial power is exercised by the STF, the federal regional courts, military courts, labor courts, electoral courts and several lower level courts. The STF has ultimate appellate jurisdiction over decisions rendered by lower federal and state courts on constitutional matters. The Superior Court of Justice (Superior Tribunal de Justiça or “STJ”) is responsible for standardizing the interpretation of federal law. The members of both the STF and the STJ are appointed by the president and ratified by the Senate.

At the state level, executive power is exercised by governors elected for four-year terms, legislative power is exercised by state deputies also elected for four-year terms, and judicial power is vested in state courts, with the possibility of appeals being filed with the STJ and STF. At the local level, municipalities also hold certain autonomy and hold elections for four-year terms for both executive and legislative powers. Legislative power is exercised by local councils mostly in relation to matters of local interest.

 

D-18

Political Developments

Corruption Investigations

Multiple investigations into public corruption have been ongoing since 2014. The investigations, which initially targeted an alleged bribery, money laundering and embezzlement scheme involving the provision of goods and services to Petrobras, a majority state-owned company, grew in scope to encompass wide-reaching anti-corruption investigations in many stages and later extended to other investigations involving the construction of sports arenas and other public contracts. Those investigations are still ongoing and could result in further developments.

From April 2021 to November 2021 a parliamentary commission of inquiry (CPI) installed by the Senate investigated alleged actions and omissions by the Federal Government in the public response to the COVID-19 pandemic as well as alleged and misappropriation of federal resources by certain states and municipalities. The Public Prosecutor’s Office initiated several investigations based on the CPI’s findings, which include investigations against former ministers and officials. Such investigations are ongoing.

On July 30, 2021, the investigation by the Attorney General of Brazil into allegations made by former Minister of Justice and Public Security Sergio Moro with respect to certain alleged criminal activities conducted by President Bolsonaro was reinstated. The investigation is under the supervision of the STF.

Cabinet Changes

On July 27, 2021, Onyx Dornelles Lorenzoni took office as Ministry of Labor and Social Affairs. The Ministry of Labor and Social Affairs was integrated into the Ministry of the Economy (Ministério da Economia) in January 2019 and was reinstated as a separate ministry on July 27, 2021.

On July 28, 2021, Ciro Nogueira was appointed as Minister of Chief of Staff.

On August 6, 2021, Bruno Bianco was appointed as Attorney-General for the Federal Government and replaced André Mendonça. On December 16, 2021, André Mendonça joined the Federal Supreme Court as a judge, as a result of the retirement of Marco Aurélio de Mello from the court.

Legislative Reforms

On January 24, 2021, the new bankruptcy regime, which aims to revise the framework for both judicial and extrajudicial restructurings and modernize the Republic’s existing bankruptcy regime, became effective.

On February 24, 2021, the new Central Bank independence law, which aims to limit political interference with the authority of the Central Bank, became effective.

On April 1, 2021, the new bidding law for the public sector, which aims to reform the existing framework that governs how the government enters into contracts with private parties for the provision of goods and services in order to reduce instances of corruption and fraud, became effective.

On April 9, 2021, the new regulatory framework for natural gas, which establishes a competitive market for natural gas with the aim of attracting new investments to the sector, reducing costs and reducing the consumption of natural gas, became effective.

On June 25, 2021, the Minister of Economy sent a tax reform bill to Congress, which includes measures to (i) simplify the existing income tax framework, (ii) reduce tax distortions and (iii) end certain income tax privileges without reducing revenues for the Federal Government (the “Tax Reform Bill”). The Tax Reform Bill is currently pending congressional approval.

On July 12, 2021, the Eletrobras Privatization Law went into effect. Eletrobras is considered the largest energy company in Latin America. See “Privatization” in the Recent Developments section for further details.

On December 23, 2021, a new law establishing a new regulatory framework for rail transportation went into effect. This law was designed to facilitate private investments in the construction of railways, in the use of idle railway networks and in the provision of rail transport services.

On August 26, 2021, a new law simplifying the procedures and rules for incorporating private companies in Brazil went into effect. This law eliminates bureaucratic steps and reduces the expected time to incorporate companies in Brazil, aiming to improve the country’s position in the World Bank’s Doing Business ranking, in which Brazil ranked 124^th in 2020.

 

D-19

On December 8, 2021, the National Congress approved Constitutional Amendment No. 46/21 altering some of the rules governing fiscal responsibility and the payment of precatórios (the “Constitutional Amendment”). Precatórios are public treasury obligations that result from judicial rulings. The Constitutional Amendment allowed the payment of precatórios in installments and established an annual limit for precatórios payments for the period of 2022 through 2026. Once the cap is reached, precatórios payments are rolled over to the following fiscal years. All precatórios issued continue to be due. The amendments aim to allow the Republic to fulfil its payment obligations, while complying with the annual ceiling on public spending. The Constitutional Amendments also modified the window for consideration of the index of inflation used for the calculation of the public spending ceiling – which is now considered from January to December of each year (instead of from July to June as per the previous legislation).

On December 30, 2021, a new legal framework for the Foreign Exchange Market aiming to improve business environment in Brazil, expand the use of Brazilian currency in international transactions and open space for Brazilian banks and financial institutions to invest in funds in Brazil or abroad went into effect.

Foreign Affairs, International Organizations and International Economic Cooperation

Brazil maintains diplomatic and trade relations with almost every nation in the world. It has been a member of the United Nations since 1945 and is an original member of the IMF, the World Bank, the World Trade Organization, the Inter-American Development Bank, the Inter-American Investment Corporation, the African Development Bank Group, the New Development Bank and the International Fund for Agricultural Development.

In addition, Brazil is a member of several other organizations including, but not limited to, the Group of Twenty (G-20) and the Mercosul. In 2016, Brazil joined the Paris Club and signed the Paris Climate Change accord. Brazil also has several international bilateral agreements in place that promote economic cooperation.

Employment and Labor

Employment Levels

The Secretariat of Labor (Secretaria do Trabalho) reports Brazilian employment statistics in terms of formal employment. Formal employment comprises employment that is registered with the Secretariat of Labor and subject to social security contributions by employers. According to the Secretariat of Labor statistics report, formal employment in Brazil increased by 7.08% in 2021 (equivalent to approximately 2,730,597 jobs).

In the fourth quarter of 2021, the unemployment rate in Brazil was 11.1%, a decrease of 3.0% compared to the fourth quarter of 2020. The average unemployment rate for 2021 was 13.2%.

Wages

Federal guidelines for minimum wage adjustments applicable in 2021 were based on maintaining purchase power to align with inflation and interest rates. The minimum monthly wage for 2021 was set at R$1,100.00, an increase of 5.3% compared to 2020.

Real average income (on a monthly basis) for the fourth quarter of 2021 was R$2,447, a reduction in relation to the third quarter of 2021 (R$2,538) and in relation to the fourth quarter of 2020 (R$2,742).

Social Security

Under Brazil’s state-operated social security and pension system, employers are generally required to contribute 20% of each employee’s wages to the system on a monthly basis. In 2021, monthly benefits paid by Brazil’s state-operated social security and pension system decreased by 1.3% in relation to 2020.

As of January 1, 2021, the monthly lower and upper limits of social security pensions paid to private sector retirees were R$1,100.00 and R$ 6,433.57, respectively.

The law providing for reform of the Brazilian Social Security System went into effect on November 13, 2019. The law established new minimum age requirements for retirement, a new minimum contribution period and transition rules.

 

D-20

State-Owned Enterprises

Corporate Enterprises

Brazil has two types of state-owned enterprises: public enterprises and mixed-ownership companies. Public enterprises, which can exist in any legally permissible corporate form, are wholly owned by the states or the Federal Government and are created by specific laws to carry out economic activities. Examples of federal public enterprises are BNDES and the Federal Savings Bank (Caixa Economica Federal or “CEF”). Mixed-ownership companies are corporations majority-owned by the Federal Government or state governments. Petrobras, Banco do Brasil and Eletrobras are examples of mixed-ownership companies.

Autonomous Institutions and Public Foundations

Brazil has autonomous institutions and public foundations. Autonomous institutions, such as the Central Bank and the Brazilian Securities Commission (Comissão de Valores Mobiliarios or “CVM”), carry out public functions that require decentralized financial and operational management. Public foundations are public non-profit entities with administrative autonomy that manage their own assets. Their expenses are financed by the Federal Government and other sources.

Private Parties

Under Brazilian law, private parties may only engage in public activities with authorization of the Federal Government. Through public concessions, the Federal Government has authorized private parties to participate in areas formerly reserved to the Federal Government under the Constitution, including broadcasting and telecommunications, electric power service and facilities and hydroelectric power generation. Nuclear energy, as well as mining and processing of radioactive ores, minerals and their by-products, remain under the Federal Government’s monopoly.

Environment

The Constitution grants citizens the right to a clean environment and imposes duties on the Federal Government, the states, the Federal District and municipalities to protect the environment, take measures against pollution and protect fauna and flora. At the federal level, the Ministry of the Environment (Ministério do Meio Ambiente) formulates and implements environmental policies, the National Council on the Environment (Conselho Nacional do Meio Ambiente) prepares environmental regulations and the Brazilian Institute of the Environment and Renewable National Resources (Instituto Brasileiro do Meio Ambiente e dos Recursos Naturais Renováveis or “IBAMA”) supervises and oversees the application of environmental regulations.

Over the past four decades, Brazil has increased its efforts to improve the environment and ensure long-term sustainable economic development. The Federal Government’s efforts have focused on combating deforestation, promoting the recovery and reasonable use of biological diversity and expanding protected areas. The Brazilian Forest Code (Código Florestal Brasileiro), enacted in 2012, establishes rules designed to restore lands damaged due to non-compliance with preservation rules, in addition to legal reserves (portions of privately-owned land preserved for natural resources) and permanent preservation areas, which are subject to certain preservation requirements.

Sustainable development is also at the core of Brazilian foreign policy. In 2021, Brazil presented its new Nationally Determined Contribution related to the Paris Climate Change Accord, in which the Republic committed to reduce its greenhouse gas emissions by 37%, in comparison to 2005, by 2025. Additionally, Brazil committed to reduce its emissions by 43%, in comparison to 2005, by 2030. The Republic increased its previous targets and is among the few countries that has committed to target reduction for 2025 and 2030.

Brazil has one of the world’s largest reserves of tropical rainforest and freshwater biodiversity, and, according to the Ministry of Mines and Energy (Ministério de Minas e Energia), one of the cleanest energy consumption profiles in the industrialized world, with 79% of all energy capacity production derived from renewable sources in December 2021.

Brazil is also the world’s second-leading producer of ethanol fuel.

Education

The Federal Government provides centralized guidelines for public and private education at all levels and coordinates the National Board of Education, which evaluates and sets general rules on education. State and municipal governments are responsible for funding free public education for all children up to the completion of secondary education.

Primary and Secondary Education

Primary education has become almost universal for children in Brazil, according to the Ministry of Education (Ministério da Educação), and it continues to improve in terms of both quality and access. In primary schools, students have access to a range of support programs to ensure student retention, including the Family Grant (Bolsa Família), a conditional cash allowance program linked in part to school attendance. Public schools also provide free meals, textbooks, healthcare and transportation. As of December 31, 2021, (i) 26.5 million students attended the primary school system; and (ii) 7.8 million students attended the secondary school system.

 

D-21

Higher Education

The University for All Program (Programa Universidade para Todos or “PROUNI”) awards full and partial scholarships to low-income students to attend higher education institutions. Since its inception in 2004, PROUNI has granted 4.35 million scholarships.

Wealth and Income Distribution

The stabilization of Brazil’s economy and lower inflation levels in recent years have contributed to an increase in the purchasing power of the lower-income population in Brazil.

Until April 2022, Brazil’s main social welfare program to address poverty was Bolsa Família. The program focused on families with a monthly income per capita between R$89 and R$178 and included income transfer mechanisms, access to public services and initiatives for job placement. Since 2003, this conditional allowance program has provided a monthly cash income to approximately 14.3 million families (43.6 million individuals), subject to compliance with certain statutory requirements. Cash transfers under Bolsa Família totaled R$21.7 billion in 2021. In August 2021, the Federal Government launched Auxilio Brasil, a new flagship program for social transfers that replaced Bolsa Família starting in April 2022. Auxilio Brasil covers around 18 million households and provides basic monthly income of at least R$400.0 to each family included in the program, compared to an average of R$217.0 per family as of November 2021 under the former Bolsa Familia program.

In August 2020, the Federal Government began a new housing initiative for low-income families called Casa Verde e Amarela in substitution of the previous Minha Casa Minha Vida initiative, which generated contracts of 6.1 million houses and delivered approximately 5.1 million houses at a total cost of R$552.8 billion between 2009 and September 2020. The goal of Casa Verde e Amarela initiative is to provide housing financing to up to 1.6 million low-income families by 2024.

In addition, as of December 31, 2021, Luz para Todos Program provided 3.5 million free electricity connections to rural residences since 2004.

Antitrust

Under Brazil’s antitrust legislation (the “Antitrust Law”), anticompetitive-conduct investigations, merger and acquisition controls and final antitrust regulatory approval are centralized in a single independent agency, the Administrative Council of Economic Defense (Conselho Administrativo de Defesa Econômica or “CADE”). The Antitrust Law sets forth general criteria for determining anti-competitive behavior, such as price fixing, predatory pricing, exclusive dealing arrangements and resale price maintenance.

All acts or transactions (regardless of form) are required to be submitted for antitrust approval if the act or transaction involves an entity or group with more than R$750 million in revenues in Brazil in the preceding fiscal year and a second entity or group with more than R$75 million in revenues in Brazil in the preceding fiscal year.

Anticompetitive practices may subject an entity to fines between 0.1% and 20% of the entity’s gross revenue for the fiscal year preceding the start of an antitrust investigation. If a company’s gross revenue cannot be assessed, it may be subject to a fine between R$50,000 and R$2.0 billion.

Anticorruption Laws

The Anticorruption Law, also known as the Clean Company Act, was enacted in 2014 to provide civil and administrative accountability of companies engaging in fraud, bribery and other corrupt practices. The principal innovations of the Anticorruption Law were: (i) companies can be held liable in cases of corruption, regardless of intent; (ii) significant administrative and judicial penalties may be imposed; (iii) fines may be reduced if companies cooperate in relevant investigations; and (iv) the law may be enforced by all levels of government and covers Brazilian companies acting abroad.

National Strategy to Combat Corruption and Money Laundering – ENCCLA

The ENCCLA program, coordinated by the Ministry of Justice and Public Security (Ministério da Justiça e da Segurança Pública), seeks to prevent money laundering and corruption in general. The ENCCLA is made up of over 70 agencies, members of the three branches of government, public prosecutors and civilians acting directly and indirectly to prevent corruption and money laundering. The ENCCLA encourages joint action, collaboration and expertise-sharing among entities through its yearly plenary session and the creation of working groups to implement specific goals and targets. The program has led to a number of developments in the fight against money laundering and corrupt practices, including the modernization of money laundering legislation, the creation of various registries such as the Registry of the Financial System Clients managed by the Central Bank, the institution of nationwide training programs, the optimization of technology networks and the improvement of publicly available resources for combating money-laundering and corruption.

 

D-22

The Anti-Crime Law

In December 2019, a law with the aim of improving Brazil’s criminal and procedural legislative framework (the “Anti-Crime Law”) was passed by the National Congress and approved by President Jair Bolsonaro. The Anti-Crime Law went into effect on January 23, 2020.

Incentives for Private Investment

Technology

The Innovation Act (enacted in 2004 and updated in January 2016) encourages economic efficiency and the development and diffusion of technologies that have the potential to induce economic activity and improve competitiveness in international trade.

Intellectual Property

The Intellectual Property Law (enacted in 1996) regulates rights and obligations related to intellectual property and provides for the protection of these rights while counterbalancing social interest and technological and economic development. The statute protects inventions and utility models, industrial designs and trademarks.

Public-Private Partnerships

Brazilian law provides for two types of public-private partnerships: (i) contracts for concessions of public works or utility services and (ii) contracts for rendering services under which a public sector entity is the end-user. Public-private partnership contracts must be valued at a minimum of R$10 million, and their terms vary between five and thirty-five years, including any term extension. All contracts are awarded through a public bidding process.

National Policy for Regional Development

The National Policy for Regional Development (Política Nacional de Desenvolvimento Regional or “PNDR”) addresses regional inequalities. PNDR’s main source of financing comes from regional development funds, and the Federal Government. PNDR is monitored by the National Information System for Regional Development (Sistema Nacional de Informação para o Desenvolvimento Regional) and is coordinated by the Ministry for Regional Development (Ministério do Desenvolvimento Regional).

 

D-23

THE BRAZILIAN ECONOMY

COVID-19

Since COVID-19 infections were reported in December 2019, the COVID-19 crisis has had a significant impact on the global economy. The Brazilian economy has been adversely impacted and, if the crisis continues for an extended period of time, the Brazilian economy may continue to be adversely impacted. For more information on the COVID-19 crisis and on the key measures taken by the Federal Government in reaction to the COVID-19 crisis, see “Recent Developments—COVID-19.”

As of December 31, 2021, Brazil had 22,287,521 confirmed cases of COVID-19, of which 619,056 were fatal. As of December 31, 2021, Brazil has adopted several measures in response to the COVID-19 outbreak aimed at preventing mass contagion and overcrowding of Brazilian health service facilities, including, among other things, granting decision-making authority to local governmental entities (i.e., states and municipalities) with respect to measures to be taken in response to the outbreak and the coordination of repatriation flights for Brazilian residents abroad. Brazilian states and municipalities have taken extensive measures to limit the spread of the outbreak, including severe restrictions on business and economic activity.

The Republic has adopted several stimulus measures in reaction to the COVID-19 crisis. As of December 31, 2021, these measures amount to R$645.5 billion and increased the primary deficit of the Central Government in 2021 by R$120.8 billion. These measures, as approved or proposed as of December 31, 2021, include, among other things, (i) granting financial aid to vulnerable populations and workers; (ii) allocating resources for medical treatment of our citizens and investing in appropriate protective gear; (iii) adopting measures to support cash flows of Brazilian companies; (iv) granting support to local governments; and (v) strengthening and increasing credit lines to individuals and companies.

Specific measures with respect to supporting vulnerable populations and workers include, among other things:

 

•

financial grants of R$600 per month, for a period of 5 months, from April to August 2020, and additional financial grants of R$300 per month, for a period of 4 months, from September to December 2020, to informal workers, individual micro-entrepreneurs (microempreendedor individual) and low income families;

 

•

expansion of the Bolsa Família program;

 

•

payment of electricity bills for low income families; and

 

•

a mandatory pause in medication price increases.

Specific measures with respect to funding of medical treatment and investment in adequate protection of our citizens include, among other things, the opening of new credit lines or the increase of existing credit lines:

 

•

to governmental institutions and organizations specifically for purposes of carrying out COVID-19 measures;

 

•

for research and development of COVID-19-related vaccines; and

 

•

to provide support to Brazilian nationals living abroad.

In addition, imported medical products will be subject to zero tax rates.

Specific measures with respect to supporting cash flow positions of Brazilian companies include, among other things:

 

•

grace periods or delayed timelines on the payment of social security contributions and tax obligations; and

 

•

enacting temporary administrative regimes aimed at increasing flexibility in the labor market, including with regard to hiring and debt negotiations.

Specific measures with respect to granting support to local governments include, among other things:

 

•

direct transfers (R$60.1 billion);

 

•

suspension of debt payments owed to the Federal Government (R$38.1 billion);

 

D-24

•

rescheduling of debt payments owed to public sector financial institutions (R$27.1 billion); and

 

•

compensation for revenue losses (R$15.1 billion).

As of December 31, 2020, the support package to local governments and subnational entities amounted to R$173.8 billion, of which R$103.5 billion relates to measures with an impact on the primary balance and R$70.3 billion relates to measures without an impact on the primary balance. This support package was approved by Congress and ratified by President Bolsonaro on May 28, 2020.

The Brazilian Central Bank has also put in place a liquidity package of R$2.6 trillion with the aim of supporting the liquidity of the Brazilian financial system through the COVID-19 crisis. The liqu idity package includes, among other things, (i) the reduction of Brazilian banks’ reserve requirements imposed by the Central Bank; (ii) the granting of collateralized loans to Brazilian financial institutions; and (iii) a repurchase program targeted at Brazilian Global Bonds currently outstanding in the market.

On April 17, 2020, the Senate approved a proposal for a constitutional amendment referred to as the War Budget (Orçamento de Guerra). The aim of the War Budget is to simplify budget execution rules during the COVID-19 pandemic, allowing for expedited authorizations of (i) government purchases; (ii) construction projects; (iii) hiring of personnel; and (iv) contracting with temporary service providers. The War Budget law was enacted by Congress on May 7, 2020, and will remain in effect pending the resolution of the existing state of emergency. As of December 31, 2020, the War Budget amounted to R$635.5 billion, of which R$540.2 billion has been utilized.

On March 15, 2021, a new fiscal regime became effective that provides for emergency aid in an amount of up to R$44 billion through direct payments to vulnerable populations to address the impact of the COVID-19 crisis. On July 5, 2021, the Federal Government extended the emergency aid through October 2021 in an additional amount of up to R$20 billion. These fiscal measures are meant to address the needs of vulnerable populations and provide emergency aid while safeguarding public finances.

On July 5, 2021, the Federal Government extended the emergency aid through October 2021 in an additional amount of up to R$20 billion.

In light of the COVID-19 crisis, the United States implemented a travel ban, effective as of May 26, 2020, and currently in place, on foreigners who have been in Brazil at any time during the 14 days prior to the date they are scheduled to enter the United States. On November 8, 2021, the United States reopened its borders to foreign travelers who are fully vaccinated against COVID-19.

Historical Background

In December 1993, with the aim of addressing the high inflation levels of the late 80s and early 90s, the Federal Government enacted the Plano Real economic program, which was highly successful in curtailing inflation, building a foundation for sustained economic growth and adopting fiscal austerity. The Plano Real was also designed to address persistent deficits in the Federal Government’s accounts, expansive credit policies and widespread, backward-looking indexation.

The Federal Government formally adopted inflation targeting as its monetary policy framework in 1999 in an environment shaped by the uncertainty of the impact of the devaluation of the Real in the Brazilian economy. Under the inflation-targeting regime, achievement of inflation targets is the main objective of the Central Bank’s monetary policy decisions. In 2016, aiming to restore fiscal balance, a public spending cap was also adopted. For more information, please refer to “Monetary Policy and Money Supply” in the “Financial System” section and “Ceiling on Public Spending” in the “Public Finance” section.

Economy in 2021

Domestic economic activity experienced a sharp rebound in 2021 (a 4.6% increase in GPD compared to 2020), after recording a strong contraction in 2020 (a 3.9% decrease in GDP compared to 2019) due to the economic and social impact of COVID-19. Previously, the Brazilian economy had recorded three consecutive years of moderate GDP growth (1.2% in 2019, 1.8% in 2018 and 1.3% in 2017), after recording a recession in 2016 (with a 3.3% contraction in GDP).

The positive result of the economy is mainly due to increases in services (4.7%) and industrial activity (4.5%). All services activities grew in 2021, in particular transportation, warehousing and post services (11.4%), mainly due to the end of lockdowns and people returning to travel. Other activities related to in-person services which had been the most affect by the pandemic also grew (7.6%).

In the first quarter of 2021, Brazil’s GDP increased at a rate of 1.4%, as compared to the fourth quarter of 2020. In the second and third quarters of 2021, GDP contracted by 0.3% and 0.1% respectively, as compared to the corresponding previous quarter. In the fourth quarter of 2021, GDP expanded at a rate of 0.5%, as compared to the previous quarter.

 

D-25

Gross Domestic Product

GDP is an aggregate measure of production equal to the sum of the market values of all final goods and services in a determined period of time.

The strong recovery of economic activity in 2021 more than offset the continuing effects of COVID-19 on the economy, with real GDP for the year above pre-pandemic levels. On the supply side, the recovery was mainly driven by industrial (4.5%) and services (4.7%) sectors, which, together, account for 90% of the GDP. The agricultural sector, in turn, contracted by 0.2%. On the services sectors, all components posted a positive print, and the highlights were transportation, storage and mailing (11.4%) and the activity of Information and communication (12.3%). On the industrial sector, the highlights were the performance of construction (9.7%) and manufacturing activity (4.5%). On the demand side, household consumption (3.6%), gross fixed capital formation (17.2%), and government consumption (2%) all expanded.

 

D-26

The following table sets forth Brazil’s GDP at current prices and expenditures for each of the years indicated.

Table No. 10

GDP at Current Prices - Demand Side

(In Billions of Reais (R$), Except Percentages⁽¹⁾)

 

		2017								2018								2019								2020								2021
		R$				%				R$				%				R$				%				R$				%				R$				%
Final Consumption			5,575.0				84.7	%			5,919.3				84.5	%			6,290.2				85.1	%			6,225.7				83.4	%			6,949.0				80.1	%
Gross Capital Formation			963.2				14.6	%			1,057.3				15.1	%			1,146.6				15.5	%			1,189.6				15.9	%			1,642.1				18.9	%
Gross Fixed Capital Formation			958.8				14.6	%			1,057.4				15.1	%			1,143.2				15.5	%			1,240.2				16.6	%			1,663.8				19.2	%
Changes in Inventories			4.4				0.1	%			-0.1				0.0	%			3.4				0.0	%			-50.5				-0.7	%			-21.6				-0.2	%
Exports of Goods and Services			824.4				12.5	%			1,025.1				14.6	%			1,043.6				14.1	%			1,254.2				16.8	%			1,744.3				20.1	%
Imports of Goods and Services			777.1				11.8	%			997.5				14.2	%			1,091.2				14.8	%			1,201.9				16.1	%			1,655.9				19.1	%
Gross Domestic Product			6,585.5				100.0	%			7,004.1				100.0	%			7,389.1				100.0	%			7,467.6				100.0	%			8,679.5				100.0	%

 

Note: Numbers may not total due to rounding.

 

(1)	Percentages of total GDP.

Source: IBGE.

The following tables set forth the share of GDP by sector at current prices and real growth at current prices by sector for each of the years indicated.

Table No. 11

GDP at Current Prices - Supply Side

(In Billions of Reais (R$), Except Percentages⁽¹⁾)

 

		2017								2018								2019								2020								2021
		R$				%				R$				%				R$				%				R$				%				R$				%
Agriculture			303.0				4.6				309.6				4.4				310.7				4.2				440.1				5.9				598.1				6.9
Industry			1,197.8				15.9				1,313.2				18.7				1,385.8				18.8				1,321.9				17.7				1,636.8				18.9
Mining, Oil and Gas			90.7				1.4				161.1				2.3				182.8				2.5				194.3				2.6				409.5				4.7
Manufacturing			706.1				10.7				737.4				10.5				763.5				10.3				721.6				9.7				837.2				9.6
Construction			244.8				3.7				243.3				3.5				248.6				3.4				216.2				2.9				191.3				2.2
Public Utilities			156.2				0.1				171.4				2.4				190.9				2.6				189.8				2.5				198.8				2.3
Services			4,171.1				52.2				4,388.3				62.7				4,660.2				63.1				4,689.3				62.8				5,154.0				59.4
Retail Services			746.1				0.2				783.0				11.2				822.6				11.1				876.7				11.7				1,130.9				13.0
Transportation			246.1				3.7				264.7				3.8				284.5				3.8				275.4				3.7				283.2				3.3
Communications			194.5				3.0				206.1				2.9				218.9				3.0				226.3				3.0				254.4				2.9
Financial Services (1)			429.5				6.5				422.7				6.0				460.3				6.2				455.2				6.1				447.3				5.2
Other Services			995.9				15.1				1,078.4				15.4				1,148.3				15.5				1,041.3				13.9				1,120.1				12.9
Rental Services			558.1				8.5				588.0				8.4				619.6				8.4				658.3				8.8				700.2				8.1
Government (2)			1,001.0				15.2				1,045.4				14.9				1,106.1				15.0				1,156.0				15.5				1,217.8				14.0
Value Added at Basic Prices			5,671.9				86.1				6,011.2				85.8				6356.7				86.0				6,451.3				86.4				7,388.9				85.1
Taxes			913.6				13.9				993.0				14.2				1,032.4				14.0				1,016.3				13.6				1,290.6				14.9
GDP			6,585.5				100				7,004.1				100				7,389.1				100				7,467.6				100				8,679.5				100

 

Note: Numbers may not total due to rounding.

 

(1)	Percentages of total GDP.

(2)	“Financial Services” includes financial intermediation, complementary social security and related services.

(3)	“Government Services” includes public education, health and administration services.

Source: IBGE.

 

D-27

Table No. 12

Real Growth (or Decline) at Current Prices by Sector

 

		2017				2018				2019				2020				2021
Real GDP			1.3	%			1.8	%			1.2	%			-3.9	%			4.6	%
Agriculture and Livestock			14.2	%			1.3	%			0.4	%			3.8	%			-0.2	%
Industry			-0.5	%			0.7	%			-0.7	%			-3.4	%			4.5	%
Mining, Oil and Gas			4.9	%			0.4	%			-9.1	%			1.3	%			3.0	%
Manufacturing			2.3	%			1.4	%			-0.4	%			-4.4	%			4.5	%
Construction			-9.2	%			-3.0	%			1.9	%			-6.3	%			9.7	%
Public Utilities			0.9	%			3.7	%			2.6	%			-0.3	%			-0.1	%
Services			0.8	%			2.1	%			1.5	%			-4.3	%			4.7	%
Retail Services			2.3	%			2.6	%			1.6	%			-3.1	%			5.5	%
Transport			1.0	%			2.1	%			0.1	%			-8.4	%			11.4	%
Communications			1.4	%			1.8	%			4.5	%			0.8	%			12.3	%
Financial Intermediation			-1.1	%			1.0	%			1.1	%			4.5	%			0.7	%
Other Services			0.7	%			3.5	%			2.8	%			-12.3	%			7.6	%
Rental Services			1.3	%			3.3	%			2.4	%			2.6	%			2.2	%
Government			0.1	%			0.1	%			-0.4	%			-4.5	%			1.5	%

 

Source: IBGE.

Principal Sectors of the Economy

The principal sectors of the Brazilian economy are industry, services, and agriculture and livestock.

Industry

The industrial sector includes the mining, oil and gas, manufacturing, construction and public utilities subsectors. The industrial sector expanded 4.5% in 2021, as compared to 2020.

As of December 31, 2021, the industrial sector represented 18.9% of Brazil’s GDP, an increase of 1.2% as compared to 2020, when it represented 17.7% of Brazil’s GDP.

Table No. 13

Annual Changes in Industry Production

(By Category of Use)

 

		2017				2018				2019				2020				2021
Capital Goods			6.2				7.1				-0.6				-9.9				28
Intermediate Goods			1.7				0.1				-2.2				-1.1				3.2
Consumer Goods			3.2				1.3				1.3				-9				0
Durable Goods			13.2				7.9				2.1				-19.8				1.9
Nondurable Goods			-1.2				2.7				-2.4				-2.9				-0.6

 

Source: IBGE.

Mining, Oil and Gas

The mining, oil and gas subsector grew 3.0% in 2021, after recording a 1.3% increment in 2020. This subsector represented 4.7% of GDP in 2021.

I. Oil and Gas

The National Oil and Gas Agency (Agência Nacional do Petróleo, Gás Natural e Biocombustíveis or “ANP”) is an independent regulatory agency linked to the Ministry of Mines and Energy, which regulates the oil industry in Brazil. The ANP is responsible for conducting public tender offers for drilling, oil and gas concessions in defined areas or blocks. The concession regime covers roughly 98% of the Brazilian sedimentary basin.

 

D-28

In 2010, the Federal Government implemented a mixed regime for Brazilian oil and gas production, regulating concessions and production sharing agreements. The Federal Government (i) granted Petrobras the right to explore up to five billion barrels of oil equivalent (“BOE”) in certain areas of the pre-salt fields not subject to concession; and (ii) established a production-sharing regime for oil and gas exploration and production in pre-salt fields not under concession and other areas designated as strategic areas by the Federal Government (the “Production Sharing Regime”). Prior to 2016, Petrobras was required to be the exclusive operator of any pre-salt deep-water field, subject to a minimum 30% Petrobras participation interest. Under the Production Sharing Regime, the National Energy Policy Council (Conselho Nacional de Política Energética or “CNPE”), prior to conducting a public bid, gives Petrobras a preference right to act as the operator of any pre-salt deep-water field at a minimum consortium interest of 30%. If Petrobras opts to not exercise its preference right, exploration and production rights for the blocks are subsequently offered under public bids. Winning bids are determined based on which bidder offers the Federal Government the highest share of excess oil, also known as “profit oil.”

The average annual daily oil and gas production from the pre-salt layer reached an average of 2.7 million BOE per day in 2021, a 5.7% increase in comparison to 2020. Pre-salt layer production represents approximately 68.6% of total oil and gas production in Brazil. Brazilian production reached approximately 1,060 million barrels of oil and 48.8 billion cubic meters of natural gas in 2021, which represents a drop of 1.5% in oil production and an increase of 4.7% in natural gas production compared to 2020.

Between 2009 and 2021, oil production grew by 49%, while natural gas production grew by 131%. The significant increase in oil and gas production can be attributed to the discovery of new production areas, which led to an increase in proven reserves.

In 2021, there was a sharp increase in revenues from royalties of 53.7%, when compared to 2020, mainly due to the recovery of the impact of COVID-19 pandemic on international oil prices.

II. Ethanol and Biodiesel.

The ANP also regulates ethanol production in Brazil. The Federal Government has continuously supported the development of technologies, production and distribution of ethanol as an alternative to petroleum.

As the world’s largest producer of sugarcane ethanol, Brazil is now at the forefront of renewable energy among developing countries. Ethanol production comprises several activities such as development of special sugarcane varieties, crop techniques, processing, storage and distribution and flex fuel engine technology. Recently, research has been focused on the development of sugarcane varieties, second-generation ethanol and optimization of agricultural and industrial production processes. In 2021, national production of anhydrous and hydrated ethanol reached 30million cubic meters, a decrease of 8.6% compared to production in 2020.

The Federal Government also promotes biodiesel production and its use as a sustainable energy source through the National Program for the Production and Use of Biodiesel (Programa Nacional de Produção e Uso do Biodiesel). Biodiesel production reached 6.8 million cubic meters in 2021, an increase of 5% when compared to production in 2020.

Manufacturing

The manufacturing subsector rebounded, expanding by 4.5% in 2021, after recording a 4.4% contraction in 2020. The expansion was mainly a result of a decrease in value of the manufacture of motor vehicles, other transport equipment, and metal. The manufacturing subsector represented 9.6% of GDP in 2021, implying a marginal 0.1% contraction when compared to 2020.

Public Utilities

The public utilities subsector (electricity and gas, water, sewage and urban cleaning) fell by 0.1% in 2021 after contracting by 0.3% in 2020, corresponding to 2.3% of GDP in 2021.

Construction

The construction sector experienced a very strong growth of 9.7% in 2021, following a 6.3% reduction in 2020. The construction sector represented 2.2% of GDP in 2021.

Services

Services, which includes retail, transportation, communications, financial services, rental services, and government subsectors such as public education, public health and public services in general, represents 59% of Brazil’s GDP. The services sector expanded by 4.7% in 2021, after contracting 4.3% in 2020.

 

D-29