{
  "title": "IMF Executive Board Concludes 2020 Article IV Consultation with Brazil",
  "publication": "IMF News, December 2, 2020",
  "sourceUrl": "https://www.imf.org/en/news/articles/2020/12/02/pr20362-brazil-imf-executive-board-concludes-2020-article-iv-consultation",
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  "summary": "Health and human cost",
  "publishDate": "2020-12-02",
  "sections": [
    {
      "heading": "Pandemic impact and policy response",
      "content": "- Health and human cost\n  - Over 5.5 million Brazilians have been infected and more than 160 thousand have died from the disease.\n- Labor market and activity\n  - Economic activity contracted by 7 percent in the first half of 2020.\n  - Unemployment rate rose to 14.4 percent in September.\n  - 11 million workers left the labor force.\n  - Households in the lowest income deciles were the most affected by the loss of labor income; women suffered a bigger decline in hours worked than men.\n  - Retail and industrial activity returned to pre-COVID levels in the third quarter; the services sector remains depressed, with a negative impact on employment.\n- Inflation and corporate sector\n  - With the sharp contraction in domestic demand, inflation turned negative in April and May but gradually rose to 2.4 percent y-o-y in August, still below the lower band of the headline inflation target.\n  - Non-financial corporate profitability fell, and leverage surged amid reduced cash flows and high uncertainty.\n- Policy response and scale\n  - Fiscal and quasi-fiscal measures amounted to 18 percent of GDP.\n  - Primary deficit rose to about 12 percent of GDP in 2020 from 1 percent in 2019.\n  - The Central Bank cut the policy rate by 225 bps in quick succession to 2 percent and announced extensive liquidity and capital relief measures.\n  - The policy response averted a deeper economic downturn, stabilized financial markets, and cushioned income loss for the poorest."
    },
    {
      "heading": "Macroeconomic outlook and risks",
      "content": "- Near-term projections\n  - The economy is projected to shrink by 5.8 percent in 2020, followed by a partial recovery to 2.8 percent in 2021.\n  - Inflation is expected to stay below target until 2023, given significant slack in the economy.\n  - The current account deficit is projected to narrow to -0.3 percent of GDP in 2020 from 2.8 percent of GDP in 2019 before gradually increasing over the medium-term as imports and profit distribution recover.\n  - With a sharp increase in the primary fiscal deficit, gross public debt is set to rise to 100 percent of GDP and remain high over the medium-term.\n- External and market considerations\n  - Record low SELIC has helped reduce government borrowing costs but the local currency yield curve has steepened considerably, highlighting market concerns over fiscal risks.\n  - Overall, risks around the baseline are exceptionally large and multifaceted.\n  - Important mitigating factors: high international reserves, a resilient banking system, and a low share of public FX debt."
    },
    {
      "heading": "Executive Board assessment and policy recommendations",
      "content": "- General assessment\n  - Executive Directors commended the authorities’ strong policy response and agreed policies should focus on limiting pandemic scarring, ensuring medium-term debt sustainability, and pressing ahead with reforms to foster a robust and inclusive recovery.\n- Fiscal policy\n  - Welcome commitment to preserve the constitutional spending ceiling as a fiscal anchor to support market confidence.\n  - In the event economic conditions are significantly worse than expected, most Directors emphasized being prepared to provide additional targeted support and cautioned against an abrupt withdrawal of fiscal support.\n  - Recommended structural fiscal reforms to lock in medium-term consolidation, including:\n    - Reducing mandatory spending and budget rigidities.\n    - Strengthening the social safety net.\n    - Reforming subnational pension schemes and strengthening the subnational fiscal framework.\n    - Revamping the tax system.\n- Monetary and exchange rate policy\n  - Monetary policy should remain supportive next year amid substantial withdrawal of fiscal stimulus.\n  - Some Directors noted scope to loosen monetary policy further, including through forward guidance, if inflation and inflation expectations remain below target.\n  - Some Directors cautioned about potential tradeoffs from further interest rate cuts given the unprecedentedly low policy interest rate; careful monitoring of implications for financial stability and capital flows is warranted.\n  - Approval of formal central bank independence would further strengthen the integrity of the monetary framework.\n  - Flexible exchange rate and sizable foreign reserves remain important shock absorbers; FX intervention should remain limited to addressing excess volatility.\n- Financial sector and supervision\n  - Brazilian banking system remains resilient but continued close surveillance is warranted.\n  - Use the flexibility of the regulatory framework to weather the pandemic without diluting prudential standards.\n  - Continued progress in implementing the 2018 FSAP recommendations will be important.\n- Structural reforms and longer-term growth\n  - Urged authorities to press ahead with structural reforms to raise potential growth and improve living standards, including:\n    - Lower financial intermediation costs.\n    - Pass comprehensive tax reform.\n    - Accelerate the pace of new concessions and privatizations.\n    - Finalize trade agreements.\n    - Labor market reforms, education and re-skilling to facilitate job reallocation.\n    - Prevent legal and institutional setbacks to combating corruption and effectively implement anti-money laundering measures; ensure integrity of public procurement.\n    - Policies for a green recovery were highlighted by a number of Directors."
    },
    {
      "heading": "Key statistics and selected indicators (as reported)",
      "content": "- COVID-19 and labor market\n  - Over 5.5 million infected.\n  - More than 160 thousand deaths.\n  - Economic activity contracted by 7 percent in the first half of 2020.\n  - Unemployment rate 14.4 percent (September 2020).\n  - 11 million workers left the labor force.\n- Policy response\n  - Fiscal and quasi-fiscal measures: 18 percent of GDP.\n  - Primary deficit: about 12 percent of GDP in 2020 (from 1 percent in 2019).\n  - Central Bank policy rate cut: 225 bps to 2 percent.\n- Outlook and debt\n  - GDP growth: -5.8 percent in 2020; 2.8 percent in 2021.\n  - Inflation: 2.4 percent y-o-y in August; expected to stay below target until 2023.\n  - Current account: -0.3 percent of GDP in 2020 (from 2.8 percent of GDP in 2019).\n  - Gross public debt: set to rise to 100 percent of GDP.\n- Selected Table 1 entries\n  - Area (thousands of sq. km): 8,510\n  - Agricultural land (percent of land area): 30.2\n  - Physician per 1000 people (2018): 2.2\n  - Population total (million) (est., 2019): 210.1\n  - Access to safe water (2018): 83.6\n  - Annual rate of growth (percent, 2018): 0.8\n  - Density (per sq. km.) (2019): 25.3\n  - Adult illiteracy rate (2019): 6.6\n  - Unemployment rate (2019): 11.9\n  - Net enrollment rates, Primary education (2019): 98\n  - Net enrollment rates, Secondary education (2019): 85\n  - Life expectancy at birth (years): 76\n  - Infant mortality (per thousand live births): 12\n  - Poverty rate (in percent, 2018) 1/: (see table)\n  - Ratio between average income of top 10 percent of earners over bottom 40 percent: 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$8,751\n  - Gini coefficient (2018): 53.9\n  - Main export products: airplanes, metallurgical products, soybeans, automobiles, electronic products, iron ore, coffee, and oil.\n  - NFPS gross debt (series in table): 83.7, 87.1, 89.5, 101.1, 99.3, 100.3, 100.9, 101.8, 102.3\n  - General Government gross debt, Authorities’ definition (series in table): 73.7, 76.5, 75.8, 96.6, 96.7, 97.4, 97.7, 98.3, 98.5\n  - Trade balance (US$ billions, series in table): 64.0, 53.0, 40.5, 51.9, 53.3, 56.7, 57.9, 57.7, 58.9\n  - Exports (US$ billions, series in table): 218.1, 239.5, 225.8, 210.3, 229.1, 236.5, 240.2, 249.6, 260.5\n  - Imports (US$ billions, series in table): 154.1, 186.5, 185.3, 158.3, 175.8, 179.7, 182.3, 191.9, 201.7\n  - Total external debt (in percent of GDP, series in table): 32.3, 35.3, 36.7, 48.7, 46.6, 43.0, 41.0, 39.0, 37.6\n  - Current account (in percent of GDP, memorandum): -2.8, -0.3, -2.4, -2.9, -3.2\n  - Unemployment rate (series in table): 12.8, 13.4, 14.1, 13.3, 12.5, 11.6, 10.8\n  - Gross official reserves (series in table): 374, 375, 357\n  - REER (annual average in percent; appreciation +): 8.5, -13.3, ...\n- Notes from table\n  - 1/ Computed by IBGE using the World Bank threshold for upper-middle income countries of U$5.5/day. This number is not comparable to the estimates provided by IPEA in previous years due to methodological differences.\n  - 2/ Includes the federal government, the central bank, and the social security system (INSS). Based on the 2017 draft budget, recent announcements by the authorities, and staff projections.\n  - 3/ Currency issued, required deposits held at the Central Bank plus other Central Bank liabilities to other depository corporations.\n  - 4/ Currency outside depository corporations, transferable deposits, other deposits and securities other than shares.\n\nIMF Press Release No. 20/362 — IMF Communications Department, December 2, 2020.\n\n---\n\n\n References\n\n- https://www.imf.org/-/media/images/imf/bios/imfboard.jpg\n- The Executive Board\n- Brazil and the IMF\n- IMF Policy Advice -- A Factsheet\n- Press Releases\n- PRESS CENTER\n- http://www.IMF.org/external/np/sec/misc/qualifiers.htm\n- https://www.imf.org/en/home\n\nSource: https://www.imf.org/en/news/articles/2020/12/02/pr20362-brazil-imf-executive-board-concludes-2020-article-iv-consultation"
    }
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    "Published: December 2, 2020",
    "Health and human cost",
    "Labor market and activity",
    "Inflation and corporate sector",
    "Policy response and scale",
    "Near-term projections",
    "External and market considerations",
    "General assessment",
    "Fiscal policy",
    "Monetary and exchange rate policy",
    "Financial sector and supervision",
    "Structural reforms and longer-term growth",
    "COVID-19 and labor market",
    "Policy response",
    "Outlook and debt",
    "Selected Table 1 entries",
    "Notes from table",
    "[https://www.imf.org/-/media/images/imf/bios/imfboard.jpg](https://www.imf.org/-/media/images/imf/bios/imfboard.jpg)",
    "[The Executive Board](https://www.imf.org/external/np/sec/memdir/eds.aspx)",
    "[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)",
    "[Press Releases](https://www.imf.org/en/news/searchnews)",
    "[PRESS CENTER](http://presscenter.imf.org/)",
    "[http://www.IMF.org/external/np/sec/misc/qualifiers.htm](http://www.imf.org/external/np/sec/misc/qualifiers.htm)",
    "[https://www.imf.org/en/home](https://www.imf.org/en/home)"
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