The International Monetary Fund said Brazil should save part of any extra revenue generated by higher oil prices and pursue more ambitious fiscal reforms to stabilize public debt, even as it acknowledged recent progress in the country’s economic policy framework.
The recommendation came in the IMF staff’s end-of-mission statement after Article IV consultations with Brazilian authorities held from May 18 to May 29. Article IV reviews are the fund’s regular assessments of member countries’ economies and policy settings.
“Authorities have taken measures to improve the fiscal position,” said Daniel Leigh, the IMF mission chief for Brazil, according to CNN Brasil. But he added that “significant fiscal reforms are needed” to place public debt “on a firmly downward path.”
The fund’s message is politically sensitive in Brazil, where the federal government has tried to combine social spending, public investment and a new fiscal framework designed to replace a previous constitutional spending cap. Investors have continued to watch whether Brasília can deliver durable primary surpluses and slow the rise of gross public debt.
The IMF said Brazil should preserve extraordinary oil-related revenue while offering temporary and targeted support where needed. It also called for broader revenue mobilization and measures to reduce rigidities in public spending. Such steps, the fund said, would strengthen fiscal credibility, lower financing costs and create room for priority investments.
Oil has become a larger part of Brazil’s external and fiscal outlook as production from offshore pre-salt fields has expanded. Brazil is a net oil exporter, which gives it some protection when global crude prices rise. The IMF also noted that the country is partly shielded by the large role of renewable sources in its electricity mix.
Even so, the fund warned that risks to growth are tilted to the downside. It cited the possibility of worsening geopolitical tensions and tighter global financial conditions, both of which could affect commodity prices, capital flows and borrowing costs for emerging markets.
The IMF said Brazil’s resilience remains supported by “strong policy frameworks, a sound financial system, adequate reserves and a flexible exchange rate.” Those features have helped the country absorb external shocks better than many peers, but they do not remove the need for fiscal adjustment, the fund argued.
On the financial system, the IMF referred to findings from a parallel Financial Sector Assessment Program, which concluded that Brazil’s banks remain resilient, well capitalized and liquid. The staff recommended continued vigilance, especially over risks in household credit, and stronger supervision. It also pointed to staffing shortages at the Central Bank of Brazil and the need to reinforce legal protections.
The fund gave a more positive assessment of Brazil’s structural-reform and green-transition agenda, saying both could support medium-term growth. Leigh said continued efforts to improve the business environment, promote competition, raise labor-force participation and advance decarbonization could lift productivity, investment and inclusive growth.
This article is based on single-source reporting from CNN Brasil, which cited the IMF’s end-of-mission statement.