BRASILIA, Oct. 5 (Reuters) – The International Monetary Fund on Monday revised upward its economic outlook for 2020 for Brazil, but warned that risks remain “exceptionally high and multifaceted” and that public debt is on track to end the year around 100% of the domestic gross produced.
The IMF now expects Latin America’s largest economy to contract 5.8% this year, far less than the 9.1% contraction it previously estimated, and expects a “partial recovery ”And a growth of 2.8% next year.
In a document outlining the preliminary findings of a recent staff visit to Brazil, the IMF said “significant” downside risks include a second wave of the pandemic, “the long-term scars” of a long recession and confidence shocks given Brazil’s huge public debt.
While the IMF welcomes the government’s commitment to reduce Brazil’s debt, it has warned that it may take time for jobs, incomes and poverty to return to pre-pandemic levels.
“If health, economic and social conditions were to turn out to be worse than expected, the authorities should be ready to provide additional budget support,” the IMF said, adding that the short-term political priority was to “save lives and means of subsistence “.
Emergency aid payments to millions of Brazil’s poorest families are set to expire at the end of this year, fueling political controversy, fiscal uncertainty and financial market volatility in recent weeks over the program that will hold them back. will replace.
The IMF noted that Brazil’s interest rate curve is “very steep,” highlighting such long-term fiscal fears, and said a series of structural reforms to lock in “medium-term consolidation will be essential.” to mitigate debt risks.
He warned that without “unequivocal” evidence that the government’s spending cap rule will be preserved, additional spending could erode market confidence and drive up interest rates.
With limited room for maneuver for looser fiscal policy, Brazil needs to rely more on monetary policy, the IMF said, adding that the central bank has the option of lowering its benchmark Selic rate from its level. current record of 2% if inflation and inflation expectations remain low.
“In addition, the continued use of forward guidance to signal that the policy rate would stay low for longer, subject to the maintenance of a sound fiscal regime, could have an expansionary effect without risk to financial stability,” said the Minister. IMF. (Reporting by Jamie McGeever Editing by Nick Zieminski)