World Energy Outlook 2006

growth to rebound in 2004, but the recovery was dampened by further
monetary tightening in 2005. Economic volatility has stymied the current
administration’s efforts to reduce poverty and unemployment.
The Brazilian economy has experienced several periods of volatility in the past.
By 2004, Brazil had accumulated $200 billion of external debt. Public debt has
declined, thanks to large primary surpluses (at about 5% of GDP), steady
GDP growth, a marked appreciation of the exchange rate and rising
international reserves. Public domestic debt as a percentage of GDP remains
high, however, reaching 59% in 2003. Financing this debt and controlling
inflation, has pushed up domestic interest rates, which peaked at just under
20% in 2005, among the highest in the world (World Bank, 2006). This has
had the effect of reducing domestic public and private investment, including
that in long-term energy projects. The net public debt to GDP ratio is expected
to continue to fall slightly over the Outlook period (EIU, 2006).
Brazil is second only to China among emerging markets as a recipient of net
foreign direct investment. Foreign direct investment was $15.1 billion in 2005
and is expected to reach $15.6 billion in 2006 (IMF, 2006b). Since structural
reforms were first launched in the energy sector in the 1990s, the share of
foreign capital in energy projects has increased rapidly. However, participation
in energy infrastructure investment by private-sector capital, both domestic
and international, has been lower than expected, because of regulatory risk and
high interest rates.
Key Assumptions
The projections in this Outlook assume that the Brazilian economy will grow
on average by 3.3% per year from 2004 to 2015 (Table 16.2). 2 Growth is
assumed to slow thereafter, bringing down the average for the entire Outlook
period to 3% per year. In the short and medium term, both private
consumption and investment are expected to support somewhat faster growth,
but growth is expected to be slower towards the end of the projection period.
Table 16.2: GDP and Population Growth Rates in Brazil
in the Reference Scenario (average annual rate of change)
1980- 1990- 2004- 2015- 2004-
2004 2004 2015 2030 2030
GDP 2.1% 2.6% 3.3% 2.8% 3.0%
Population 1.7% 1.5% 1.2% 0.8% 0.9%
GDP per capita 0.4% 1.0% 2.1% 2.0% 2.1%
2. See Chapter 1 for a discussion of GDP and population assumptions.
Chapter 16 - Focus on Brazil 451
16