Public Information Notice: IMF Executive Board Concludes 2012 Article IV Consultation with Brazil
IMF News, July 20, 2012
Source details
- Canonical URL
- Public Information Notice: IMF Executive Board Concludes 2012 Article IV Consultation with Brazil
Other formats
Bibliographic details
- Published: July 20, 2012
Background
- The past decade: "remarkable social transformation in Brazil, underpinned by macroeconomic stability and rising living standards."
- Strong policy framework highlighted: "fiscal responsibility, inflation targeting and a flexible exchange rate."
- Drivers of recent gains: "terms of trade gains and economic and financial inclusion" supporting "sizable gains in private consumption and some increase in investment."
- Financial stability: "underpinned by a strong banking system and framework for regulation and supervision."
- Recent slowdown:
- Growth surprised on the downside in 2011.
- Policy tightening cycle launched during 2010-11 to cool overheating and bring inflation back to target.
- Growth stalled in 2011 Q3 and slowed to "2.7 percent in 2011," partly reflecting external shocks.
- Policy stance in 2012:
- "Monetary policy has since been eased substantially" though transmission has been gradual.
- Primary surplus target for 2012 "kept unchanged at 3.1 percent of GDP."
- Economy expanded only slowly in early 2012 due to weak investment, business confidence, and slowing trade volumes.
- Consumption recovering since late 2011 due to improving confidence and buoyant labor market conditions, including the large minimum wage increase.
- Inflation and expectations:
- After peaking "at over 7 percent in September 2011," annual headline inflation "dropped to 5 percent in May."
- Decline reflects unwinding of transitory supply factors, index weight updating, and lagged impact of moderating growth and negative output gap.
- "Medium term expectations have risen above the target mid-point."
- Credit and financial deepening:
- "Credit has grown very rapidly in Brazil over the last years with a substantial increase in the credit-to-GDP ratio."
- Contributing factors: financial deepening, new borrowers accessing finance post-2003, legal reforms strengthening creditor rights, and still-low overall financial development by international standards.
- More recently, credit growth has moderated, reducing overheating risks; "large buffers in the system limit stability risks."
- Capital flows and exchange rate:
- "Capital flows have slowed in recent months."
- Portfolio flows modest, influenced by capital flow management measures and increased global risk aversion.
- "Foreign direct investment inflows (FDI) are still buoyant and continue to largely fund the current account."
- Exchange rate: depreciated significantly against the U.S. dollar as flows moderated, but "remains above the average levels of 2004-08 in real effective terms."
Executive Board Assessment
- Commendation:
- Directors commended the authorities' commitment to a strong policy framework, delivering "a decade of macroeconomic stability and rising living standards."
- Policy calibration challenges:
- "Appropriately calibrating policy to changing economic conditions and increasing saving and investment will be important challenges for the period ahead."
- Fiscal and monetary stance:
- Directors welcomed reorientation toward "generating fiscal savings and providing monetary countercyclical support."
- Encouraged authorities to "meet their deficit target for the year to secure a declining path for the debt ratio and further boost the credibility of their fiscal plans."
- Monetary policy viewed as "appropriately eased," with a caveat that authorities "should stand ready to unwind the monetary stimulus if their inflation target appears at risk."
- External defense and capital flow measures:
- "Exchange rate flexibility and liquidity provision provide first lines of defense against adverse external shocks."
- CFMs "have been a useful addition to the policy toolkit in a turbulent financial environment."
- Some Directors cautioned that CFMs "do not fully address important underlying drivers of capital inflows, could affect domestic liquidity, and may adversely impact other capital flow recipients."
- Rebalancing demand and competitiveness:
- Directors considered that "further efforts are needed to rebalance demand from consumption to investment and net exports."
- Noted staff assessment that "the real effective exchange rate remains on the strong side despite a significant depreciation from peak levels a year ago."
- Welcomed steps to strengthen saving and competitiveness, including "pension and tax reforms," but emphasized "the need for further reforms to raise productivity."
- Recommended "Public investment financed by fiscal saving and further capital market deepening" as important.
- Financial sector vigilance:
- Welcomed FSAP Update findings that "the financial sector is well regulated and supervised and that the banking system is well-placed to cope with shocks."
- Still concerned about "rapid consumer credit growth, rising real estate prices, and continued credit expansion by public banks" — calling for "continued vigilance and careful prudential oversight."
- Commended authorities' plans to "bring forward the implementation of elements of Basel III, continue to make active use of macroprudential policy tools, and further boost the soundness of the financial sector."
Key Statistics (Selected figures from Table. Brazil: Basic Data, 2006-2012)
- Real GDP (annual percentage changes):
- 2006: 4.0
- 2007: 6.1
- 2008: 5.2
- 2009: -0.3
- 2010: 7.5
- 2011: 2.7
- 2012 (Prel./Proj.): 2.5
- Domestic demand (contribution to growth, percent):
- 2006: 4.6
- 2007: 6.9
- 2008: 6.5
- 2009: 0.0
- 2010: 9.6
- 2011: 3.4
- Private consumption (growth rate):
- 2006: 5.7
- 2007: 4.4
- 2008: 4.1
- 2009: (value not listed for 2009 in source)
- Public consumption (growth rate):
- 2006: 2.6
- 2007: 5.1
- 2008: 3.2
- 2009: 3.1
- 2010: 4.2
- 2011: 1.9
- 2012: -1.7
- Gross investment (growth rate):
- 2006: 5.8
- 2007: 11.4
- 2008: 11.3
- 2009: -11.7
- 2010: 20.8
- 2011: 3.7
- Gross fixed capital formation:
- 2006: 9.8
- 2007: 13.9
- 2008: 13.6
- 2009: -6.7
- 2010: 21.3
- 2011: 4.7
- Foreign balance (contribution to growth, percent):
- 2006: -0.7
- 2007: -0.8
- 2008: -1.3
- 2009: -2.0
- 2010: -0.6
- 2011: -0.2
- Exports of GNFS (contribution to growth, percent):
- 2006: 0.6
- 2007: 0.7
- 2008: 0.1
- 2009: -1.0
- 2010: 1.2
- 2011: 0.5
- 2012: 0.4
- Imports of GNFS (contribution to growth, percent):
- 2006: 1.3
- 2007: 1.6
- 2008: 1.4
- 2009: 1.1
- 2010: 1.1
- Prices:
- Consumer price index (IPCA, period average):
- 2006: 3.6
- 2007: 4.9
- 2008: 5.0
- 2009: 6.6
- Consumer price index (IPCA, end of period):
- 2006: 4.5
- 2007: 5.9
- 2008: 4.3
- 2009: 4.8
- GDP deflator:
- 2006: 8.3
- 2007: 7.2
- 2008: 8.2
- 2009: 7.0
- 2010: 5.6
- Terms of trade:
- 2006: 5.3
- 2007: 2.1
- 2008: 3.5
- 2009: -3.2
- 2010: 17.0
- 2011: 7.8
- 2012: -6.8
- Public finances (in percent of GDP, Federal government 1/):
- Total revenues:
- 2006: 23.0
- 2007: 23.3
- 2008: 23.6
- 2009: 22.8
- 2010: 24.4
- 2011: 23.9
- Total expenditures:
- 2006: 26.1
- 2007: 25.5
- 2008: 26.0
- 2009: 24.8
- Of which: interest:
- 2006: 3.3
- Primary balance:
- 2006: 2.2
- 2007: 2.8
- 2008: 1.8
- Consolidated public sector overall balance:
- 2006: -3.5
- 2007: -2.6
- 2008: -3.0
- 2009: -2.7
- 2010: -1.9
- Public sector net debt:
- 2006: 47.0
- 2007: 45.1
- 2008: 38.0
- 2009: 41.5
- 2010: 39.1
- 2011: 36.4
- 2012: 34.6
- Money and credit (12-month percentage changes):
- Base money 2/:
- 2006: 12.6
- 2007: 21.8
- 2008: -17.6
- 2009: 11.6
- 2010: 131.7
- 2011: 10.8
- 2012: 7.4
- Broad money (M2) 3/:
- 2006: 18.6
- 2007: 18.4
- 2008: 18.0
- 2009: 15.8
- 2010: 15.4
- 2011: 18.7
- 2012: 15.5
- Credit to the private sector:
- 2006: 28.9
- 2007: 28.3
- 2008: 13.3
- 2009: 22.9
- 2010: 20.2
- 2011: 18.1
- Balance of payments (in billions of U.S. dollars):
- Current account:
- 2006: -28.2
- 2007: -24.3
- 2008: -47.3
- 2009: -52.5
- 2010: -63.4
- Merchandise trade balance:
- 2006: 46.5
- 2007: 40.0
- 2008: 25.3
- 2009: 20.1
- 2010: 29.8
- 2011: 9.9
- Exports:
- 2006: 137.8
- 2007: 160.6
- 2008: 197.9
- 2009: 153.0
- 2010: 201.9
- 2011: 256.0
- 2012: 260.0
- Imports:
- 2006: -91.4
- 2007: -120.6
- 2008: -173.1
- 2009: -127.7
- 2010: -181.8
- 2011: -226.2
- 2012: -250.1
- Services, income, and transfers (net):
- 2006: -32.8
- 2007: -38.5
- 2008: -53.0
- 2009: -49.6
- 2010: -67.4
- 2011: -82.3
- 2012: -73.3
- Capital and financial account:
- 2006: 16.3
- 2007: 89.1
- 2008: 29.3
- 2009: 71.3
- 2010: 99.6
- 2011: 109.4
- 2012: 91.7
- Foreign direct investment:
- 2006: -9.4
- 2007: 27.5
- 2008: 24.6
- 2009: 36.0
- 2010: 36.9
- 2011: 76.0
- 2012: 55.6
- Portfolio investment:
- 2006: 37.9
- 2007: 50.5
- 2008: 56.4
- 2009: 31.2
- 2010: 14.4
- Other capital (net):
- 2006: 23.7
- 2007: -15.2
- 2008: 6.3
- 2009: 21.7
- Errors and omissions / Change in net international reserves:
- Change in net international reserves:
- 2006: -4.3
- 2007: -30.6
- 2008: -87.5
- 2009: -46.7
- 2010: -48.8
- 2011: -55.7
- Additional external ratios:
- Current account (in percent of GDP):
- 2006: -1.5
- 2007: -2.3
- 2008: -2.1
- Outstanding external debt (in percent of GDP):
- 2006: 12.0
- 2007: 12.2
- 2008: 12.7
- Total debt service ratio (in percent of exports of goods & services):
- 2006: 51.8
- 2007: 51.5
- 2008: 28.6
- 2009: 40.4
- 2010: 29.9
- 2011: 26.4
- 2012: 21.0
- Gross reserves/short-term external debt (residual maturity, in percent):
- 2006: 425.1
- 2007: 463.6
- 2008: 531.4
- 2009: 769.7
- 2010: 503.6
- 2011: 887.5
- 2012: 394.6
- Sources listed in table: "Central Bank of Brazil; Ministry of Finance; and IMF staff estimates."
- Notes from table:
- "1/ Includes the central government, central bank, and social security system."
- "2/ End of period. Currency issued plus required and free reserves on demand deposits held at the central bank."
- "3/ End of period. Currency in circulation plus demand, time and savings deposits."
Public Information Notice (PIN) No. 12/84 — July 9, 2012; IMF EXTERNAL RELATIONS DEPARTMENT, Public Affairs, Media Relations.