IMF Executive Board Concludes 2021 Article IV Consultation with Brazil

IMF News, September 22, 2021

Source details

Canonical URL: IMF Executive Board Concludes 2021 Article IV Consultation with Brazil

Other formats

Bibliographic details

Published: September 22, 2021

Overview

Executive Board concluded the Article IV consultation with Brazil on September 10, 2021; press release dated September 22, 2021 (Press Release No. 21/274).
Economic performance has been better than expected, aided by the authorities’ forceful policy response.
GDP regained its pre-pandemic level in 2021Q1; momentum supported by booming terms of trade and robust private sector credit growth.
COVID-19 impact: pandemic has claimed more than 550,000 Brazilians; renewed lockdowns and vaccination rollout reduced infections since April; government procured sufficient doses to inoculate the adult population in 2021 with the most vulnerable expected to be fully inoculated by the end of the year.

Economic outlook and projections

Real GDP projected to grow by 5.3 percent in 2021.
Inflation: expected to fall steadily from recent peaks toward the mid-point of the target range by end-2022.
Public debt:
- Public debt jumped to 99 percent of GDP in 2020.
- Public debt expected to drop sharply to 92 percent of GDP in 2021 and remain around that level over the medium-term.
Key projected indicators (selected):
- GDP at current prices: 2020 = 0.6; 2021 = 15.0; 2022 = 7.8; 2023 = 6.1; 2024 = 6.2
- GDP at constant prices (percentage change): 2017 = 1.3; 2018 = 1.8; 2019 = 1.4; 2020 = -4.1; 2021 = 5.3; 2022 = 1.9; 2023 = 2.0; 2024 = 2.1
- Consumer prices (IPCA, end of period): 2017 = 2.9; 2018 = 3.7; 2019 = 4.3; 2020 = 4.5; 2021 = 3.3; 2022 = 3.0
- Net public sector debt (percent of GDP): 2017 = 51.4; 2018 = 52.8; 2019 = 54.6; 2020 = 62.7; 2021 = 63.9; 2022 = 66.4; 2023 = 69.4; 2024 = 71.8; 2025 = 72.6; 2026 = 74.6
- NFPS gross debt: 2017 = 85.6; 2018 = 87.7; 2019 = 98.9; 2020 = 91.6; 2021 = 90.9; 2022 = 91.7; 2023 = 92.0; 2024 = 92.1
- Current account (billions of U.S. dollars): 2017 trade balance = 57.3; 2018 = 43.4; 2019 = 26.5; 2020 = 32.4; 2021 = 76.1; projected 2022 = 63.4; 2023 = 55.9; 2024 = 49.7; 2025 = 50.0; 2026 = 50.8
- Exports (billions of U.S. dollars): 2017 = 218.0; 2018 = 239.5; 2019 = 225.8; 2020 = 210.7; 2021 = 281.2; 2022 = 280.4; 2023 = 279.9; 2024 = 283.6; 2025 = 294.0; 2026 = 304.4
- Imports (billions of U.S. dollars): 2017 = 160.7; 2018 = 196.1; 2019 = 199.3; 2020 = 178.3; 2021 = 205.2; 2022 = 217.0; 2023 = 224.1; 2024 = 234.0; 2025 = 244.0; 2026 = 253.6
- Foreign direct investment (net inflows, billions of U.S. dollars): 2017 = 47.5; 2018 = 46.4; 2019 = 48.1; 2020 = 57.9; 2021 = 64.8; 2022 = 69.5; 2023 = 72.8; 2024 = 75.9
- Total external debt (percent of GDP): 2017 = 32.3; 2018 = 34.7; 2019 = 36.0; 2020 = 44.3; 2021 = 37.7; 2022 = 31.8; 2023 = 29.3; 2024 = 27.5; 2025 = 26.3; 2026 = 25.8

Key challenges and risks

Inflation pressures from currency depreciation and a surge in commodity prices have increased headline inflation and inflation expectations while output gap remains negative.
Labor market lags recovery in output; unemployment remains high, especially among youths, women, and afro-Brazilians.
Social safety net concerns: emergency cash transfers will eventually expire; absent permanent strengthening of the safety net, poverty and inequality could worsen.
Fiscal risks: near-term fiscal risks are low, but high public debt poses medium-term risks and requires rebuilding buffers.
Uncertainty around the outlook is exceptionally high; risks to growth viewed as broadly balanced.

Executive Board assessment and policy recommendations

Directors commended decisive policy response to COVID-19 that reduced the severity of the 2020 recession and cushioned impact on the poor and vulnerable.
Fiscal policy guidance:
- Focus on rebuilding buffers and reducing budget rigidities to create space for public investment and a stronger social safety net.
- Continued adherence to the expenditure ceiling is necessary to reduce public debt.
- Comprehensive tax reform should aim to increase progressivity, simplify the system, and improve resource allocation.
- Tax reform should include a bold plan to scale back tax expenditures to frontload the benefits to equity and efficiency.
- Adopt a more robust medium-term fiscal framework and strengthen subnational finances to enhance fiscal credibility and reduce fiscal risks.
Monetary and exchange rate policy:
- Support for ongoing steady tightening of monetary policy to address rising inflation and keep inflation expectations well-anchored.
- Monetary policy should remain data dependent, complemented with proactive communication and clear forward guidance.
- Directors welcomed commitment to a flexible exchange rate and limiting intervention to countering disorderly market conditions.
Financial sector:
- Banking system noted as resilient and supportive of recovery.
- Gradual phasing out of crisis-related financial support is appropriate.
- Endorsement of efforts to enhance financial inclusion and promote competition in the banking system.
Structural and supply-side reforms:
- Welcome for ambitious supply-side reform agenda to boost productivity, potential growth, and living standards.
- Need for concerted action to liberalize foreign trade and product markets, increase formal labor market flexibility, and improve governance.
- Strengthen effectiveness and predictability of anti-corruption and AML/CFT frameworks.
- Further steps needed to improve the environment for private sector investment.
Climate-related policies:
- Directors welcomed initiatives to foster environmentally sustainable activities in response to climate-related risks.
- Encouragement for closer collaboration between authorities and IMF staff to analyze climate-related risks in macroeconomic and financial stability assessments.

Selected social and demographic indicators (as reported)

Area (thousands of sq. km): 8,510
Agricultural land (percent of land area): 30.2
Population Total (million) (est., 2019): 210.1
Annual rate of growth (percent, 2018): 0.8
Density (per sq. km.) (2019): 25.3
Life expectancy at birth (years): 76
Infant mortality (per thousand live births): 12
Access to safe water (2018): 83.6
Physician per 1000 people (2018): 2.2
Hospital beds per 1000 people (2018): (value provided in table header but not specified)
Net enrollment rates, percent in: Primary education (2019) = 98; Secondary education (2019) = 85
Adult illiteracy rate (2019): 6.6
Unemployment rate (2019): 11.9
Poverty rate (in percent, 2018) 1/: (computed by IBGE using World Bank threshold U$5.5/day)
GDP, local currency (2020): R$7,448 billion
GDP, dollars (2020): US$1,445 billion
GDP per capita (2020): US$6,875
Gini coefficient (2018): 53.9
Income distribution (2017) — Ratio between average income of top 10 percent of earners over bottom 40 percent: 12.4
Main export products: airplanes, metallurgical products, soybeans, automobiles, electronic products, iron ore, coffee, and oil.

Press Release No. 21/274, September 22, 2021, IMF Communications Department.

IMF Executive Board Concludes 2021 Article IV Consultation with Brazil

Source details

Other formats

Bibliographic details

Overview

Economic outlook and projections

Key challenges and risks

Executive Board assessment and policy recommendations

Selected social and demographic indicators (as reported)

References