{
  "title": "Brazil: Staff Concluding Statement of the 2020 Article IV Mission",
  "publication": "IMF News, October 5, 2020",
  "sourceUrl": "https://www.imf.org/en/news/articles/2020/10/05/mcs100520-brazil-staff-concluding-statement-of-the-2020-article-iv-mission",
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  "summary": "Selected projections (Percentage change unless noted) - GDP at current prices: 2017 5.0; 2018 4.6; 2019 5.3; 2020 -2.6; 2021 6.3; 2022 6.5; 2023 6.2 - GDP at constant prices: 2017 1.3; 2018 1.1; 2019 -5.8; 2020 2.8; 2021 2.3; 2022 2.2 - Consumption: 2017 1.4; 2018 1.7; 2019 -6.4; 2020 2.9; 2021 1.5 ",
  "publishDate": "2020-10-05",
  "sections": [
    {
      "heading": "Pre-Covid: Macroeconomic context and structural reforms",
      "content": "- Brazil experienced the slowest recovery on record after the 2015-16 recession, with GDP growth during 2017-19 described as \"disappointingly low\" and among the 10 percent weakest recoveries around the world in the last 50 years.\n- Key reforms and policy developments before 2020:\n  - Pension reform passed in October 2019 that \"stabilized pension spending as a share of GDP.\"\n  - Draft legislations submitted to control government spending, improve tax efficiency, and decentralize fiscal resources.\n  - Adoption of the constitutional expenditure ceiling in 2016.\n  - Core inflation below target enabled the Central Bank (BCB) to cut the policy rate to a record low of 4.25 percent by early 2020.\n  - Structural transformation of financial markets and deepening capital markets with new retail investors."
    },
    {
      "heading": "The Covid-19 shock: impact on health, labor, and financial markets",
      "content": "- Health and labor impact:\n  - \"More than140,000 Brazilians have died and 4.8 million have been infected.\"\n  - Economic activity contracted by 7 percent in the first half of 2020, \"the largest contraction in 30 years.\"\n  - Almost 12 million jobs were lost between February and July, of which over 7 million were from the informal sector.\n  - Unemployment rate rose by about 2 percentage points to 13.8 percent; 11 million workers (over 10 percent of the workforce) left the labor force altogether.\n  - Households at the lowest income decile lost 30.2 percent of their monthly income.\n  - Women experienced a decline in hours worked of 36.2 percent versus 27 percent for men.\n- Financial flows and external sector:\n  - Portfolio outflows amounted to US$32 billion in March and April; outflows over 2015-19 totaled around US$47 billion.\n  - The Real weakened significantly; international reserves recovered to end-2019 levels but non-resident portfolio outflows have not yet reversed.\n- Policy response and stabilization measures:\n  - Congress declared a state of public calamity enabling fiscal/quasi-fiscal measures amounting to 18 percent of GDP.\n  - Primary fiscal deficit rose to 12 percent of GDP.\n  - Emergency Aid (Auxílio Emergencial):\n    - Lifted the income of an estimated 23 million individuals—10 percent of the total population—above the extreme poverty line.\n    - Extended to 67.7 million individuals; average fiscal costs for nine months expected to reach around 4.6 percent of GDP.\n    - Noted as \"close to 10 times the annual cost of the well regarded Bolsa Familia program.\"\n  - Employment retention scheme subsidized temporary reductions in hours and is estimated to have saved up to 10 million jobs at a cost of around 0.4 percent of GDP between April and September.\n  - Government-backed credit lines to SMEs helped save 2 million jobs.\n  - BCB actions:\n    - Cut policy rate by 225 bps in quick succession to 2 percent.\n    - Sold US$38 billion in the spot and derivatives market during March and April.\n    - Announced extensive liquidity and capital relief measures.\n    - Congress passed legislation allowing the BCB to purchase public and private assets for financial stability purposes while a state of public calamity is in force (option not yet used)."
    },
    {
      "heading": "Outlook and macroeconomic risks",
      "content": "- Growth and current account projections:\n  - Economy projected to shrink by 5.8 percent in 2020, followed by partial recovery to 2.8 percent in 2021.\n  - Current account projected to post a small surplus of 0.3 percent of GDP in 2020 and to balance in 2021.\n- Fiscal and debt projections:\n  - Gross public debt projected to jump to around 100 percent of GDP in 2020 and remain high over the medium-term.\n  - Gross financing needs of 29 percent of GDP in 2020 are being met through domestic issuances and use of liquid assets (Treasury deposits at the BCB).\n  - Record low SELIC and shorter average debt maturities have reduced borrowing costs to historically low levels (5 percent relative to a high of close to 15 percent in late 2016).\n  - Brazil faces a \"very steep local currency yield curve,\" signalling market concerns over fiscal sustainability.\n- Key risks and strengths:\n  - Downside risks: second wave of the pandemic, long-term scarring from a protracted recession, vulnerability to confidence shocks given high public debt.\n  - Upside potential: recession could be less severe or recovery more robust than projected.\n  - Strengths: \"sizable international reserves, a resilient banking system, and a low share of public FX debt.\"\n  - International reserves are \"about 150 percent of the IMF’s benchmark (ARA) metric and 250 percent of external debt.\""
    },
    {
      "heading": "Near-term policy priorities: saving lives and livelihoods",
      "content": "- Fiscal anchor and consolidation:\n  - \"Authorities’ steadfast commitment to the expenditure ceiling is welcome.\"\n  - Preserving the constitutional expenditure ceiling is essential to support market confidence and keep the sovereign risk premium contained.\n  - Substantial fiscal consolidation required to close the primary deficit; mission projects consolidation as necessary to stabilize public debt over the medium-term.\n- Conditional additional support:\n  - Authorities should be prepared to provide additional fiscal support if health, economic, and social conditions worsen.\n- Structural reforms to lock in medium-term consolidation—recommended focuses:\n  - Reducing mandatory spending and budget rigidities:\n    - Discretionary spending currently limited to less than 7 percent of the Federal Budget (1.5 percent of GDP).\n    - Suggested measures: overhaul civil service career structures to reduce wages and pensions burden; reduce earmarking; de-link social benefits from minimum wage increases.\n    - These measures \"could at a minimum release one percent of GDP annually for discretionary spending.\"\n    - Reform subnational pension schemes in line with federal provisions and reduce state personnel spending to comply with Fiscal Responsibility Law limits.\n  - Strengthening the social safety net:\n    - Holistic review to eliminate inefficient and regressive programs.\n    - Expected savings of at least 0.3 percent of GDP under the expenditure ceiling to fund an expanded Bolsa Familia program on a permanent basis while preserving efficient targeting.\n  - Revamping the tax system:\n    - Simplify indirect taxes, reduce payroll costs and tax expenditures, and adopt more progressive labor and capital income taxation.\n    - Implicit and explicit fiscal incentives are approaching 5 percent of GDP and could be a source of revenues to improve the primary balance and reduce debt.\n- Monetary and financial policy role in 2021:\n  - With withdrawal of fiscal stimulus, monetary policy \"carries the burden of supporting the economy.\"\n  - Current policy rate of 2 percent corresponds to a negative real rate and is \"strongly expansionary.\"\n  - Room to cut the policy rate further if inflation and inflation expectations remain below target, while monitoring capital outflows and financial stability.\n  - Use of forward guidance conditional on a sound fiscal regime recommended.\n  - Temporary reduction in the reserve requirement ratio could be made permanent to reduce banks’ liquidity costs.\n  - If conventional monetary policy is exhausted, BCB has the option to use QE.\n  - Approval of formal Central Bank independence would further strengthen the monetary framework.\n- Banking system resilience and supervisory recommendations:\n  - Solvency stress tests suggest banking system will remain resilient; banks have increased provisions.\n  - Use regulatory flexibility to weather short-term impact without diluting prudential standards.\n  - If needed, banks should draw down capital conservation buffers; allow liquidity coverage ratio to fall below 100 percent in system-wide liquidity stress and BCB could expand collateral base of lending facilities.\n- Structural agenda to raise potential growth:\n  - Urgent need for reforms to make the economy more competitive and attractive to investment.\n  - Support for the BCB's BC Agenda to improve market efficiency and reduce the cost of credit.\n  - Calls for renewed push to pass comprehensive tax reform, finalize trade agreements with the EU and others, conclude the GPA with the WTO, and accelerate concessions and privatizations.\n  - Newly approved sanitation and sewage bill is welcomed and expected to spur infrastructure projects and investments.\n- Anti-corruption and AML/CFT priorities:\n  - Authorities should continue to prioritize the fight against corruption and money laundering and prevent legal and institutional setbacks.\n  - Preparations for FATF/GAFILAT AML/CFT assessment underway (national risk assessment and AML/CFT risk-based financial supervision).\n  - Legislative initiative to amend AML/CFT law should involve all stakeholders to ensure FATF compliance.\n  - Additional measures recommended: enhance sharing of beneficial ownership information, and strengthen frameworks for asset disclosures, lobbying, and whistleblower protection."
    },
    {
      "heading": "Key statistics and selected indicators (as presented)",
      "content": "- Area (thousands of sq. km): 8,512\n- Agricultural land (percent of land area): 28.7\n- Physician per 1000 people (2018): 2.1\n- Hospital beds per 1000 people (2018): 2.0\n- Population, Total (million) (est., 2019): 210.1\n- Annual rate of growth (percent, 2018): 0.8\n- Density (per sq. km.) (2018): 24.7\n- Access to safe water (2015): 98.1\n- Adult illiteracy rate (2016): 7.2\n- Unemployment rate (2019): 11.9\n- Net enrollment rates, Primary education (2017): 99\n- Net enrollment rates, Secondary education (2015): 84\n- Life expectancy at birth (years): 76\n- Infant mortality (per thousand live births): 13\n- Poverty rate (in percent, 2017) 1/: 25.4\n- Ratio between average income of top 10 percent of earners over bottom 40 percent (2017): 12.4\n- GDP, local currency (2019): R$7,257 billion\n- GDP, dollars (2019): US$1,839 billion\n- GDP per capita (2019): US$8,751\n- Gini coefficient (2017): 54.9\n- Main export products: airplanes, metallurgical products, soybeans, automobiles, electronic products, iron ore, coffee, and oil.\n\nSelected projections (Percentage change unless noted)\n- GDP at current prices: 2017 5.0; 2018 4.6; 2019 5.3; 2020 -2.6; 2021 6.3; 2022 6.5; 2023 6.2\n- GDP at constant prices: 2017 1.3; 2018 1.1; 2019 -5.8; 2020 2.8; 2021 2.3; 2022 2.2\n- Consumption: 2017 1.4; 2018 1.7; 2019 -6.4; 2020 2.9; 2021 1.5\n- Investment: 2017 2.4; 2018 3.1; 2019 3.6; 2020 -10.8; 2021 6.6; 2022 5.6; 2023 6.1\n- Consumer prices (IPCA, end of period): 2017 3.7; 2018 4.3; 2019 3.2; 2020 3.3\n- Gross domestic investment, Private sector (percent of GDP): 2017 12.3; 2018 12.7; 2019 13.1; 2020 12.9; 2021 13.5; 2022 14.0; 2023 14.5\n- Gross national savings (percent of GDP): 2017 20.4; 2018 18.6; 2019 17.2; 2020 30.6; 2021 20.3; 2022 19.6; 2023 19.8; 2024 20.2; 2025 20.5\n- Central government primary balance 2/: 2017 -1.9; 2018 -1.8; 2019 -1.3; 2020 -11.7; 2021 -3.0; 2022 -2.0; 2023 -0.6; 2024 -0.1\n- NFPS primary balance: 2017 -1.7; 2018 -1.0; 2019 -12.0; 2020 -3.1\n- NFPS overall balance: 2017 -7.9; 2018 -7.2; 2019 -16.8; 2020 -5.6; 2021 -5.9\n- Net public sector debt (percent of GDP): 2017 51.4; 2018 53.6; 2019 55.7; 2020 68.5; 2021 74.0; 2022 76.9; 2023 79.1; 2024 81.2; 2025 82.8\n- General Government gross debt, Authorities’ definition: 2017 73.7; 2018 76.5; 2019 75.8; 2020 99.0; 2021 100.0; 2022 100.5; 2023 100.6\n- NFPS gross debt: 2017 83.7; 2018 87.1; 2019 89.5; 2020 101.4; 2021 102.8; 2022 103.5; 2023 103.8; 2024 104.2; 2025 104.4\n- Of which: Foreign currency linked: 2017 4.1; 2018 4.7; 2019 4.5; 2020 4.4\n- Base money (annual percentage change): 2017 9.6; 2018 1.6; 2019 9.9\n- Broad money (annual percentage change): 2017 8.1; 2018 9.1; 2019 10.2; 2020 8.3; 2021 8.0\n- Bank loans to the private sector (annual percentage change): 2017 7.7; 2018 5.5; 2019 10.0; 2020 12.0; 2021 9.0; 2022 8.5\n- Trade balance (billions of U.S. dollars): 2017 64.0; 2018 53.0; 2019 40.5; 2020 62.8; 2021 62.9; 2022 71.1; 2023 73.0\n- Exports (billions of U.S. dollars): 2017 218.1; 2018 239.5; 2019 225.8; 2020 221.1; 2021 238.7; 2022 248.3; 2023 258.9; 2024 270.6; 2025 282.7\n- Imports (billions of U.S. dollars): 2017 154.1; 2018 186.5; 2019 185.3; 2020 158.3; 2021 175.8; 2022 179.7; 2023 187.8; 2024 197.6; 2025 209.1\n- Current account (billions of U.S. dollars): 2017 -15.0; 2018 -41.5; 2019 -50.9; 2020 0.2; 2021 -4.1; 2022 -8.3; 2023 -13.6\n- Total external debt (percent of GDP): 2017 32.3; 2018 35.3; 2019 37.0; 2020 48.3; 2021 45.2; 2022 41.0; 2023 38.4; 2024 36.0; 2025 34.2\n- Foreign direct investment (net inflows, billions of U.S. dollars): 2017 47.5; 2018 76.1; 2019 50.7; 2020 68.1; 2021 37.4; 2022 31.4; 2023 27.6; 2024 26.8\n- Terms of trade (percentage change): 2017 5.8; 2018 0.9; 2019 -0.9; 2020 -1.2\n- Merchandise exports (in US$, annual percentage change): 2017 18.3; 2018 9.8; 2019 -5.7; 2020 7.9; 2021 4.0\n- Merchandise imports (in US$, annual percentage change): 2017 21.0; 2018 -14.6; 2019 11.0; 2020 5.2\n- Memorandum items:\n  - Current account (in percent of GDP): 2017 -2.2; 2018 -2.8; 2019 0.3; 2020 -0.5\n  - Unemployment rate: 2017 12.8; 2018 13.4; 2019 14.1; 2020 13.3; 2021 12.5; 2022 11.6; 2023 10.8\n  - Gross official reserves: 2017 374; 2018 375; 2019 357\n  - REER (annual average in percent; appreciation +): 2017 -10.4\n\nSource: IMF staff concluding statement, \"Brazil: Staff Concluding Statement of the 2020 Article IV Mission\", October 5, 2020.\n\n---\n\n\n References\n\n- Brazil and the IMF\n- IMF Policy Advice -- A Factsheet\n- The IMF and Good Governance -- A Factsheet\n- Mission Concluding Statements\n- PRESS CENTER\n- https://www.imf.org/en/home\n\nSource: https://www.imf.org/en/news/articles/2020/10/05/mcs100520-brazil-staff-concluding-statement-of-the-2020-article-iv-mission"
    }
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  "bullets": [
    "[Markdown version](/en/news/articles/2020/10/05/mcs100520-brazil-staff-concluding-statement-of-the-2020-article-iv-mission/index.md)",
    "[Structured JSON version](/en/news/articles/2020/10/05/mcs100520-brazil-staff-concluding-statement-of-the-2020-article-iv-mission/index.json)",
    "[Bundle manifest](/en/news/articles/2020/10/05/mcs100520-brazil-staff-concluding-statement-of-the-2020-article-iv-mission/bundle-manifest.json)",
    "Published: October 5, 2020",
    "Brazil experienced the slowest recovery on record after the 2015-16 recession, with GDP growth during 2017-19 described as \"disappointingly low\" and among the 10 percent weakest recoveries around the world in the last 50 years.",
    "Key reforms and policy developments before 2020:",
    "Health and labor impact:",
    "Financial flows and external sector:",
    "Policy response and stabilization measures:",
    "Growth and current account projections:",
    "Fiscal and debt projections:",
    "Key risks and strengths:",
    "Fiscal anchor and consolidation:",
    "Conditional additional support:",
    "Structural reforms to lock in medium-term consolidation—recommended focuses:",
    "Monetary and financial policy role in 2021:",
    "Banking system resilience and supervisory recommendations:",
    "Structural agenda to raise potential growth:",
    "Anti-corruption and AML/CFT priorities:",
    "Area (thousands of sq. km): 8,512",
    "Agricultural land (percent of land area): 28.7",
    "Physician per 1000 people (2018): 2.1",
    "Hospital beds per 1000 people (2018): 2.0",
    "Population, Total (million) (est., 2019): 210.1",
    "Annual rate of growth (percent, 2018): 0.8",
    "Density (per sq. km.) (2018): 24.7",
    "Access to safe water (2015): 98.1",
    "Adult illiteracy rate (2016): 7.2",
    "Unemployment rate (2019): 11.9",
    "Net enrollment rates, Primary education (2017): 99",
    "Net enrollment rates, Secondary education (2015): 84",
    "Life expectancy at birth (years): 76",
    "Infant mortality (per thousand live births): 13",
    "Poverty rate (in percent, 2017) 1/: 25.4",
    "Ratio between average income of top 10 percent of earners over bottom 40 percent (2017): 12.4",
    "GDP, local currency (2019): R$7,257 billion",
    "GDP, dollars (2019): US$1,839 billion",
    "GDP per capita (2019): US$8,751",
    "Gini coefficient (2017): 54.9",
    "Main export products: airplanes, metallurgical products, soybeans, automobiles, electronic products, iron ore, coffee, and oil.",
    "GDP at current prices: 2017 5.0; 2018 4.6; 2019 5.3; 2020 -2.6; 2021 6.3; 2022 6.5; 2023 6.2",
    "GDP at constant prices: 2017 1.3; 2018 1.1; 2019 -5.8; 2020 2.8; 2021 2.3; 2022 2.2",
    "Consumption: 2017 1.4; 2018 1.7; 2019 -6.4; 2020 2.9; 2021 1.5",
    "Investment: 2017 2.4; 2018 3.1; 2019 3.6; 2020 -10.8; 2021 6.6; 2022 5.6; 2023 6.1",
    "Consumer prices (IPCA, end of period): 2017 3.7; 2018 4.3; 2019 3.2; 2020 3.3",
    "Gross domestic investment, Private sector (percent of GDP): 2017 12.3; 2018 12.7; 2019 13.1; 2020 12.9; 2021 13.5; 2022 14.0; 2023 14.5",
    "Gross national savings (percent of GDP): 2017 20.4; 2018 18.6; 2019 17.2; 2020 30.6; 2021 20.3; 2022 19.6; 2023 19.8; 2024 20.2; 2025 20.5",
    "Central government primary balance 2/: 2017 -1.9; 2018 -1.8; 2019 -1.3; 2020 -11.7; 2021 -3.0; 2022 -2.0; 2023 -0.6; 2024 -0.1",
    "NFPS primary balance: 2017 -1.7; 2018 -1.0; 2019 -12.0; 2020 -3.1",
    "NFPS overall balance: 2017 -7.9; 2018 -7.2; 2019 -16.8; 2020 -5.6; 2021 -5.9",
    "Net public sector debt (percent of GDP): 2017 51.4; 2018 53.6; 2019 55.7; 2020 68.5; 2021 74.0; 2022 76.9; 2023 79.1; 2024 81.2; 2025 82.8",
    "General Government gross debt, Authorities’ definition: 2017 73.7; 2018 76.5; 2019 75.8; 2020 99.0; 2021 100.0; 2022 100.5; 2023 100.6",
    "NFPS gross debt: 2017 83.7; 2018 87.1; 2019 89.5; 2020 101.4; 2021 102.8; 2022 103.5; 2023 103.8; 2024 104.2; 2025 104.4",
    "Of which: Foreign currency linked: 2017 4.1; 2018 4.7; 2019 4.5; 2020 4.4",
    "Base money (annual percentage change): 2017 9.6; 2018 1.6; 2019 9.9",
    "Broad money (annual percentage change): 2017 8.1; 2018 9.1; 2019 10.2; 2020 8.3; 2021 8.0",
    "Bank loans to the private sector (annual percentage change): 2017 7.7; 2018 5.5; 2019 10.0; 2020 12.0; 2021 9.0; 2022 8.5",
    "Trade balance (billions of U.S. dollars): 2017 64.0; 2018 53.0; 2019 40.5; 2020 62.8; 2021 62.9; 2022 71.1; 2023 73.0",
    "Exports (billions of U.S. dollars): 2017 218.1; 2018 239.5; 2019 225.8; 2020 221.1; 2021 238.7; 2022 248.3; 2023 258.9; 2024 270.6; 2025 282.7",
    "Imports (billions of U.S. dollars): 2017 154.1; 2018 186.5; 2019 185.3; 2020 158.3; 2021 175.8; 2022 179.7; 2023 187.8; 2024 197.6; 2025 209.1",
    "Current account (billions of U.S. dollars): 2017 -15.0; 2018 -41.5; 2019 -50.9; 2020 0.2; 2021 -4.1; 2022 -8.3; 2023 -13.6",
    "Total external debt (percent of GDP): 2017 32.3; 2018 35.3; 2019 37.0; 2020 48.3; 2021 45.2; 2022 41.0; 2023 38.4; 2024 36.0; 2025 34.2",
    "Foreign direct investment (net inflows, billions of U.S. dollars): 2017 47.5; 2018 76.1; 2019 50.7; 2020 68.1; 2021 37.4; 2022 31.4; 2023 27.6; 2024 26.8",
    "Terms of trade (percentage change): 2017 5.8; 2018 0.9; 2019 -0.9; 2020 -1.2",
    "Merchandise exports (in US$, annual percentage change): 2017 18.3; 2018 9.8; 2019 -5.7; 2020 7.9; 2021 4.0",
    "Merchandise imports (in US$, annual percentage change): 2017 21.0; 2018 -14.6; 2019 11.0; 2020 5.2",
    "Memorandum items:",
    "[Brazil and the IMF](http://www.imf.org/external/country/BRA/index.htm)",
    "[IMF Policy Advice -- A Factsheet](https://www.imf.org/en/about/factsheets/imf-surveillance)",
    "[The IMF and Good Governance -- A Factsheet](https://www.imf.org/en/about/factsheets/sheets/2023/the-imf-and-good-governance)",
    "[Mission Concluding Statements](https://www.imf.org/en/news/searchnews)",
    "[PRESS CENTER](http://presscenter.imf.org/)",
    "[https://www.imf.org/en/home](https://www.imf.org/en/home)"
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