Brazil: Selected Issues

IMF Staff Country Reports, July 31, 2023

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Brazil: Selected Issues

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Bibliographic details

• Published: July 31, 2023
• Series: IMF Staff Country Reports
• DOI: https://doi.org/10.5089/9798400249266.002

Overview

• Focus: challenges and options for reform in Brazil, with emphasis on building on the new fiscal rule and enhancing the fiscal framework.
• Central concern: the new rule’s focus on revenues carries important implementation risks, and consolidation that is more ambitious is needed to achieve a downward debt path.
• Approach: drawing on Brazil’s and cross-country experience with fiscal frameworks to propose options to strengthen the framework.

Key findings and diagnostics

• The new proposed fiscal rule addresses important priorities of the new government and offers opportunities for gradual fiscal consolidation over an extended horizon, but important challenges remain.
• The new rule’s emphasis on revenues creates implementation risks.
• Consolidation that is more ambitious than currently designed is needed to place public debt on a robustly downward trajectory.
• There is scope to shape a more comprehensive and integrated fiscal framework that leverages specific advantages of fiscal rules.
• Further considerations to refine the proposed rule include ensuring consistency between the spending rule and the primary balance targets, while making the primary balance targets more binding.
• The existing fiscal framework would benefit from a strong fiscal anchor that:
  • puts debt on a firmly declining path;
  • rebuilds buffers; and
  • embeds a medium-term perspective.
• Additional vulnerabilities and biases identified:
  • a procyclical bias in the fiscal framework;
  • exposure to commodity revenue volatility; and
  • soft budget constraints at subnational government levels.

Policy recommendations and reform options

• Make primary balance targets more binding to strengthen the credibility of consolidation.
• Ensure consistency between the spending rule and primary balance targets to avoid policy conflicts and implementation gaps.
• Establish a strong fiscal anchor to drive a declining debt path and the rebuilding of buffers with a medium-term orientation.
• Address procyclical bias by:
  • institutionalizing an escape clause; and
  • considering a mechanism to smooth commodity revenues.
• Harden budget constraints for subnational governments to reduce fiscal risks and improve aggregate discipline.
• Leverage cross-country best practices to design a more comprehensive and integrated fiscal framework that balances flexibility and discipline.

Scope and publication metadata

• Pages: 75
• Volume: 2023
• Issue: 289
• Series: Country Report No. 2023/289
• DOI: https://doi.org/10.5089/9798400249266.002
• Stock No: 1BRAEA2023002
• ISBN: 9798400249266
• ISSN: 1934-7685
• Subject keywords: Fiscal governance, Fiscal policy, Fiscal rules, Fiscal stance, International organization, Monetary policy, Public debt, Revenue administration
• Additional keywords appearing on the source: alternative investment scenario, Caribbean, climate strategy, Europe, Fiscal governance, Fiscal rules, Fiscal stance, Global, implementation challenge, policy option, spending measure

International Monetary Fund. Western Hemisphere Dept. "Brazil: Selected Issues", IMF Staff Country Reports 2023, 289 (2023).

Content in this bundle

• Brazil: Selected Issues; IMF Country Report No. 23/289; June 30, 2023
  • Brazil: Selected Issues; IMF Country Report No. 23/289; June 30, 2023 (Markdown version)
  • Brazil: Selected Issues; IMF Country Report No. 23/289; June 30, 2023 (PDF)