IMF Staff Completes 2023 Article IV Visit to Brazil

IMF News, May 16, 2023

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Growth is projected to moderate this year to 1.2 percent, from 2.9 percent in 2022.
Growth is expected to improve to 1.4 percent in 2024 and 2 percent over the medium term.
The outlook is subject to downside risks, but strong buffers support resilience:
- a sound financial system,
- large cash buffers by the public sector,
- adequate international reserves.

Authorities aim to achieve a primary fiscal surplus of 1 percent of GDP by 2026.
Staff recommends:
- a more ambitious fiscal effort that continues beyond 2026 to put debt on a firmly declining path,
- protecting social and investment spending,
- enhancing the fiscal framework,
- further broadening of the tax base,
- reforms that tackle spending rigidities.
The approval of the authorities’ indirect tax reform plan would significantly streamline the tax regime and could boost potential output.

Headline inflation has rapidly declined from last year’s peak, but core inflation remains elevated, while inflation expectations have edged up.
Headline inflation is expected to converge to the target by mid-2025.
The monetary policy stance is consistent with reducing inflation to target, in line with the inflation targeting framework.
Staff observation and suggestions:
- Consideration could be given to setting a fixed medium-term target in line with regional peers to increase clarity around flexibility when shocks hit the economy and reduce uncertainty.
- Considering targets on an annual basis is described as a less efficient way to gain flexibility.
- Adequate FX reserves and the flexible exchange rate remain important shock buffers.

The banking system is sound, the financial sector remains resilient and systemic risks are contained.
Targeted policy measures and financial literacy initiatives to address pockets of household debt vulnerabilities and protect consumers are welcome.
A bigger role for public banks should be managed carefully to mitigate risks for fiscal sustainability and monetary policy transmission.
Notable financial innovation initiatives:
- Pix, an instant payment system, launched in late 2020.
- Open Finance environment introduced in 2021.
- Plans for the Digital Real are expected to underpin a public blockchain infrastructure that fosters financial innovation within a regulated environment.
These initiatives have increased financial inclusion, efficiency, and competition.

Authorities are embarking on an ambitious agenda to steer a sustainable, inclusive, and green economy.
Opportunities for greener growth are considerable, including leveraging Brazil’s competitive advantage in renewable energies.
The IMF staff supports authorities’ plans to:
- strengthen climate resilience,
- halt illegal deforestation,
- decarbonize the economy.

An IMF team, led by Ana Corbacho, conducted discussions for the 2023 Article IV Consultation during May 2-16, 2023.
At the conclusion of the visit, Ms. Corbacho issued the staff statement summarizing preliminary findings and recommendations.
Press Release No. 23/154.

IMF Communications Department press release, May 16, 2023.