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The end of economic stimuli, such as emergency aid, and the persistence of the new coronavirus pandemic, which encourages social isolation, will reduce household consumption and affect Brazil’s economic recovery.
The restriction scenario appears in a report on Brazil, published on Wednesday (2), by the IMF (International Monetary Fund).
On the Fund’s balance sheet, the country will suffer an abrupt withdrawal of the economic stimulus measures adopted by the government, as the effects of the health crisis generated by the pandemic persist.
In the report, the institution affirms that the authorities must be prepared to provide additional support in the tax area. The institution had already warned about it in its latest documents.
He also said that the Central Bank should consider further easing monetary policy, that is, evaluating further cuts in the base interest rate if inflation and inflation expectations remain below the target, but with careful monitoring of the implications for stability. financial and capital flows. Currently, the basic interest rate in Brazil, the Selic, is 2% per year.
On Tuesday (1), President Jair Bolsonaro (without a party) again denied the idea of extending emergency aid. The benefit, currently worth R $ 300, is paid by the government to alleviate the impacts of the pandemic on the family budget and ends on December 31.
The IMF also affirmed the need to pass a comprehensive tax reform, accelerate the pace of new concessions and privatizations, and finalize trade agreements.
To balance the budget, the suggestion is to reduce mandatory spending and budget rigidity, strengthen the social safety net, and reform Social Security again, in addition to maintaining the constitutional spending ceiling.
IMF estimates indicate that GDP (Gross Domestic Product) will fall from 5.8% in 2020, followed by a “partial recovery” to 2.8% in 2021. Estimates are more pessimistic than those of the Central Bank’s Focus bulletin , with market projections, which point to a drop of 4.5% and a growth of 3.45% in these two years.
For the Fund, inflation should remain below the target until at least 2023, given the significant inactivity of the economy. Gross debt would reach 100% of GDP next year.
“The lingering effects of the health crisis and the expected withdrawal of fiscal support will restrict consumption, while investment will be hampered by idle capacity and high uncertainty,” says the institution, commenting on growth projections for 2020 and 2021.
Directors praised the authorities’ strong response to the crisis, “which prevented a deeper economic slowdown, stabilized financial markets and cushioned the effects on the poor and vulnerable.”
However, the Fund says stimulus should focus on limiting the striking effects of the pandemic, ensuring debt sustainability over the medium term.
According to the Fund, measures in the economic area amounted to 18% of Brazilian GDP, with around 11% of GDP those of fiscal impact.
“The political response prevented a deeper economic slowdown, stabilized financial markets and cushioned the loss of income of the poorest. Retail and industrial activity returned to pre-Covid levels in the third quarter, but the services sector remains depressed, with a negative impact on employment, ”says the Fund.
“Most of the directors [do Fundo] He emphasized that the authorities should be prepared to provide additional targeted support and welcomed the willingness of the authorities to consider this possibility. Several directors have also warned against an abrupt withdrawal of fiscal support.
The report is the result of the annual visit of a team of Fund technicians to the country, presented to the IMF Board of Directors, and expresses the opinions of the institution’s executive directors, which are forwarded to the national authorities.
