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Brazil showed a pulse, economically and politically, after a devastating collision with Covid-19. But the beat looks too weak to trigger a recovery in a depressed stock market. Funds traded on the Brazilian MSCI iShares exchange are inactive 30% this year, meanwhile global developing market almost returned to even.

The Latin American giant has recovered better than expected over the past two months, driven by consumer spending. David Beker, chief Latin American economist at Bank of America, has increased its 2020 gross domestic product forecast to a contraction of 5.7%, from 7.7%. “The destruction of work is not as bad as we thought,” he said.

Politicians are moving beyond spraying the population with cash to focus on the next big reform challenge: rationalizing Brazil’s very complicated tax system.

Finance Minister Paulo Guedes, economic majordomo President Jair Bolsonaro, launched a tax reform blueprint on July 21, and each assembly of Congress has its own pending. “There seems to be some consensus to move forward with tax changes,” Beker said.

But this Band-Aids will hardly cure an economy that hasn’t grown more than 1.5% every year since 2013. Most consumer revival is driven by government emergency donations, called coronavouchers that distribute 600 reals ($ 116) per month to about half population.

However, the state cannot maintain this for long. The Brazilian budget deficit will approach 20% of GDP this year, inflating public debt to nearly 100% of annual output, figures Alberto Ramos, head of Latin American economic research at Goldman Sachs.

“It stands out as one of the weakest fiscal positions in emerging markets,” he said.

Expenditures driven by a pandemic, although deemed necessary, cut one reason for tax reform: to reduce the net burden of Brazilian companies. Now the government must increase revenues, cut expenses, or maybe do both.

“Taking tax in Brazil is already in the low 30s [as percentage of GDP], which is high for EM, “said Aaron Hurd, senior currency portfolio manager at State Street Global Advisors. “Tax reform will have little impact over the next five years compared to the fiscal consolidation that will be needed.”

Last year, Guedes began a way to replenish state coffers and cut corporate taxes: through financial transaction taxes, which basically will take time anytime Brazilians exchange money. However, that was not a popular idea, and the finance minister’s final proposal firmly abandoned it.

The current system is very difficult to use is a deterrent to fix it. Champions need to find a new formula with more winners than losers, then shepherd it through the legislature with nearly 600 members from around 30 different parties.

No wonder this topic has been on the air for decades without much success, noted Ramos. Hopes are also limited for this round. “It might come out better than we have, but I am not betting on major reforms,” ​​he said.

Brazil is disjointed Response to Covid also undermined the belief that it could lead to technocratic heroism in taxation or other structural reforms, said Monica de Bolle, who monitors the country’s 210 million for the Peterson Institute for International Economics. Brazil is number 2 in the global pandemic mortality count, with around 90,000, although only 10 per capita.

“These are all deck chairs dragging Titanic,” he said. “Forget the whole reform effort.”