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The International Monetary Fund (IMF) improved its 2020 economic outlook for Brazil on Monday, but warned that risks remain “exceptionally high and multifaceted” and that public debt is on track to end the year at around 100% of GDP. Gross Domestic (GDP).
The IMF now expects Latin America’s largest economy to contract 5.8% this year, much less than the 9.1% contraction it had previously estimated, and forecasts a “partial” recovery and growth of 2.8. % in the next year.
In a paper outlining preliminary findings from a recent team visit to Brazil, the IMF said “significant” negative risks include a second wave of the pandemic, “long-term scars” from a long recession and shocks to confidence. due to the enormous public debt of the country.
While the IMF welcomes the government’s commitment to reducing Brazil’s debt, the Fund warned that it may take time for jobs, income and poverty to return to pre-pandemic levels.
“If health, economic and social conditions deteriorate than the authorities expect, they (government officials) must be prepared to provide additional fiscal support,” the IMF said, adding that the short-term policy priority is ” save lives and livelihoods. “
Emergency aid payments to millions of Brazil’s poorest families are expected to expire later this year, generating political noise, fiscal uncertainty, and financial market volatility in recent weeks as the government tries to design a program to replace aid.
The IMF noted that Brazil’s interest curve is “very steep”, highlighting these long-term fiscal fears, and said that a series of structural reforms for “medium-term consolidation will be essential” to mitigate debt risks. .
The report warned that without “unmistakable” evidence that the government’s spending cap rule will be maintained, the additional spending could undermine market sentiment and raise interest rates.
With limited scope for looser fiscal policy, Brazil should rely more on monetary policy, the IMF said, adding that the central bank has scope to reduce the Selic rate below the current rate of 2%, a record low. , if inflation and inflation expectations remain low.
“Furthermore, the continued use of future guidance to signal that the basic interest rate will remain low for longer, conditional on maintaining a sound fiscal regime, can have an expansionary effect without risks to financial stability,” the IMF said.
