IMF Staff Completes 2025 Article IV Visit to Brazil

IMF News, June 3, 2025

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Brazil’s economy "has grown strongly over the past three years, surprising on the upside."
Staff projection: growth moderates from 3.4 percent in 2024 to 2.3 percent in 2025.
Inflation path: expected to reach 5.2 percent by end-2025, before gradually converging to the 3 percent target by end-2027.
External balance: the external current account deficit reached 2.8 percent of GDP in 2024.
Medium-term growth: forecast to recover to 2.5 percent, supported by normalization of monetary policy and structural factors.

The pivot to a tightening cycle in September 2024 was judged "appropriate and consistent with bringing inflation and inflation expectations back to the 3 percent target."
Rationale for tightening: above-target near- and medium-term inflation expectations and a widening positive output gap.
Policy guidance: in the context of heightened global policy uncertainty and inflation expectations above target-consistent levels, "maintaining flexibility on the pace and length of the hiking cycle is prudent."

Authorities are "continuing to improve the fiscal position, while trying to meet social spending and investment needs."
Staff recommendations to put public debt on a firmly downward path and open space for priority investments:
- A sustained and more ambitious fiscal effort.
- An enhanced fiscal framework.
- Revenue mobilization measures.
- Spending measures.
Specific fiscal measures advised: phase out costly and inefficient tax expenditures, enhance revenue administration, and tackle budget rigidities to open space for priority investments, support public debt sustainability, and facilitate a lower path of interest rates.
VAT reform: Implementation of the landmark 2023 VAT reform is proceeding; expected to significantly simplify the tax system and boost productivity, with efforts aiming to secure revenue-neutrality.
Personal income tax reform: a reform "that aims to enhance equity is under discussion in Congress."

The financial sector "was resilient in 2024 and is expected to remain so amid higher interest rates."
Public banks: "appear well-capitalized, profitable, and liquid, and have been paying dividends to the government." Recommendation: lending by public banks should continue to focus on addressing market failures, such as supporting long-term investment.
Regulatory agenda: authorities are implementing regulatory changes to further strengthen financial sector resilience; reforms to facilitate a reduction in household leverage are needed.
Payments and digital currency:
- Pix now accounts for 49 percent of all electronic payments in Brazil.
- The pilot of Brazil’s Central Bank Digital Currency, Drex, has entered the second phase, where additional use cases and integration with external platforms will be tested and enhanced, while continuing to explore data privacy solutions.

Structural reforms and expanding hydrocarbon production have lifted Brazil’s medium-term growth prospects.
Additional structural reforms and implementation of the Ecological Transformation Plan would further boost productivity, investment, and job-rich growth.
Social inclusion: reforms are extending recent gains in social inclusion.
Environment: "Brazil has made notable progress in reducing deforestation in recent years and is on track to meet its Nationally Determined Contribution (NDC) targets."

Growth risks: risks to the growth outlook are tilted to the downside amid heightened global policy uncertainty.
Resilience factors cited: a sound financial system, adequate FX reserves, low reliance on FX debt, large government cash buffers, and a flexible exchange rate.

The IMF team thanked the authorities and private sector representatives for their support, hospitality, and constructive dialogue.

Source: IMF Staff Completes 2025 Article IV Visit to Brazil — Press Release No. 25/174, June 3, 2025.