Brazil's federal investment program: Where it's at and where it's going

The Brazilian government’s federal investment program, known as PAC 3, was launched by President Luiz Inácio Lula da Silva last year and has reached an execution level of nearly 40%.

PAC 3, also known as the new PAC, is coordinated by the government in partnership with the private sector, states, municipalities and social movements.

Earlier versions of the PAC, called PAC 1 and PAC 2, focused heavily on public spending during the previous administrations of Lula’s Workers Party from 2003 to mid-2016.

Under the new PAC, 1.3tn reais (US$224bn) are expected to be invested by the end of 2026, when Lula’s term ends, and up to 1.8tn reais in total, combining public and private sector initiatives. 

The program comprises nine areas, namely digital inclusion and connectivity; health; education; social and inclusive infrastructure; sustainable and resilient cities; water; efficient and sustainable transport; energy transition and security; and defense.

Maurício Muniz Barretto de Carvalho, PAC’s special secretary, talked with BNamericas about the current status of the program and the scenario ahead.

BNamericas: What is the status of the execution of the projects included in the PAC so far? Is it within, below or above expectations?

Carvalho: It is within our estimates. 

We have an execution level of 38.5% of projects, which is an adequate level for one year and 10 months of Lula's administration.

It’s worth mentioning that this level of execution is based on a compilation carried out by us with figures up to July this year.

There are areas within the PAC that are performing better and others that are progressing more slowly. But that was expected. 

PAC 3 is more challenging than previous PACs because it’s a broader program than PACs 1 and 2, covering nine areas. Many of these areas, such as health, education and telecommunications, were not included in previous PACs.

But we’re at a very adequate level in terms of achieving our goals.

BNamericas: What are the most advanced areas within the PAC?

Carvalho: I would mention some areas as highlights.

The transport area, including highways, and the energy area are performing quite well.

Furthermore, the housing area, with the Minha Casa, Minha Vida program, must be the most advanced area. 

Within this housing program we have a plan to deliver 2mn homes, and we have already surpassed the mark of 1mn housing units delivered. This is the area with the best performance.

BNamericas: Which areas are most lagging?

Carvalho: These are the areas associated with state and municipal government projects. 

We’re seeking to build a federal process to attract more projects from these local governments, but these processes take a while. 

Because of this, the execution of local government projects, associated with the areas of health, education, water supply, drainage, slope adaptation, are areas that I would say are the most behind.

But delays in these areas were not unexpected. 

We have built a relationship of trust with mayors and state governments to ensure their commitment to the development of projects, to bring their proposals. That’s when we created PAC Seleções, to attract local governments.

In the past, we had PAC 1 and PAC 2 where there were projects presented by local governments to the federal government. Then there was a seven-year interruption of the PAC, until the launch of PAC 3 and this generated a discontinuity.

It’s expensive for some city halls to use part of their budgets to develop projects and if the city hall doesn’t have confidence that the federal government will provide support for the advancement of that project, it will not invest in its development.

The ongoing PAC Seleções seeks to reestablish this relationship of trust between local governments and the federal government, ensuring that projects presented by local governments within the program will move forward. 

Either way, it’s a big job. We have more than 5,000 municipalities and many of these municipalities do not have the structure to develop their projects alone. 

BNamericas: So the development of projects by local governments is the main bottleneck at the moment for the PAC? Isn’t it financing or a skilled workforce, as some analysts mentioned when the PAC was launched last year?

Carvalho: Project development is a bottleneck that we need to resolve.

Labor was a concern and since the beginning of PAC 3, we created a parallel structure, Qualifica PAC, which involves intermediation with the private sector to provide training for professionals. 

BNamericas: What are the potential impacts of the elections in the United States on infrastructure projects in Brazil?

Carvalho: The main element is for Brazil to do its homework well.

Regardless of the results of the elections in the United States, if we have fiscal stability, regulatory stability, we will bring investments. 

Lula has already governed Brazil with the United States having presidents from the Republican party and from the Democratic party, so the important thing is that we do our homework and guarantee stability, which the Lula government is doing.

BNamericas: International investors in infrastructure have demanded exchange rate protection mechanisms in Brazil. Are there measures in this regard being evaluated in the PAC?

Carvalho: By doing our work correctly, with the country having inflationary stability, meeting fiscal targets, and sustainable growth, we will be guaranteed an exchange rate at adequate levels.