The Executive Board of the International Monetary Fund (IMF) has completed its Article IV Consultation with Brazil. The Brazilian authorities have agreed to publish the Staff Report prepared for this consultation.
Brazil's economy has experienced strong growth over the past three years, but signs of moderation are emerging. Growth is expected to slow from 3.4% in 2024 to 2.3% in 2025 due to tight monetary and financial conditions, reduced fiscal support, and global policy uncertainty. Over the medium term, growth is projected to recover to 2.5%, aided by monetary policy normalization and structural factors such as VAT reform and increased hydrocarbon production. Inflation is anticipated to reach 5.2% by the end of 2025, gradually aligning with a 3% target by the end of 2027.
The growth outlook faces downside risks due to global policy uncertainty, while inflation risks are balanced. Higher-than-expected household consumption could boost short-term growth amid a tight labor market. Medium-term upside risks include faster productivity-enhancing reforms and the Ecological Transformation Plan. Downside risks involve external factors like economic slowdowns in major economies and domestic issues such as potential impacts from monetary policy tightening and insufficient fiscal efforts.
Executive Directors praised Brazil's recent economic performance, noting progress in structural reforms that have improved medium-term growth prospects. They encouraged continued efforts towards inflation convergence, fiscal sustainability, and tackling long-standing challenges through structural reforms.
Directors recommended further steps to improve Brazil's fiscal position, including public debt reduction, lower interest rates, and priority investments. Measures like rationalizing tax expenditures and addressing budget rigidities were suggested to mobilize revenues effectively.
The Central Bank of Brazil was commended for its commitment to price stability through appropriate monetary policy tightening aimed at achieving a 3% inflation target. The flexible exchange rate regime and adequate foreign exchange reserves were noted as valuable buffers against shocks.
Directors acknowledged the resilience of Brazil's financial system but advised close monitoring of household credit risks following enhancements in private payroll loan programs. The authorities' leadership in financial innovation was recognized for promoting inclusion, efficiency, and competition.
Brazil's leadership in multilateral cooperation was highlighted through initiatives like the Ecological Transformation Plan and progress in reducing deforestation. Efforts towards regulatory simplification, anti-corruption measures, increased labor force participation (especially for women), and skills upgrading were seen as key factors for enhancing medium-term growth prospects while improving social inclusion.