The International Monetary Fund (IMF) has downgraded its fiscal projections for Brazil, predicting continued budget deficits until the end of President Luiz Inácio Lula da Silva’s term.
Revised IMF forecasts, unveiled during Spring Meetings in Washington, reflect consequences of Brazil’s fiscal target adjustments by the economic team.
Brazil is expected to face a primary deficit of 0.6% of its Gross Domestic Product (GDP) in 2024 and 0.3% in 2025.
A balanced budget is not anticipated until 2026, with a projected surplus of 0.4% of GDP in 2027, and gradual improvements each year through 2029.
This outlook represents a downturn from previous forecasts. In October, the IMF was cautiously optimistic, foreseeing a smaller primary deficit in 2024 and a modest surplus in 2025.
The changes arise from the Brazilian government’s recent decision to reduce its surplus targets for the coming years.
This adjustment marks a significant shift from an initially projected surplus of 0.5% of GDP in 2025 to a new target of zero, and lowers the 2026 goal from 1% to 0.25%.
In Washington, Finance Minister Fernando Haddad justified adjustments as strategic, aiming for viable debt stabilization aligned with medium-term stability.
Despite efforts, the IMF projects Brazil’s public debt to rise, reaching 86.7% of GDP in 2024 (up from 84.7% in 2023) and possibly hitting 90.9% by 2026.
Brazil’s economic situation appears more challenging when compared to other emerging markets, whose average debt-to-GDP ratio stands at 70.3%.
IMF forecasts suggest Brazil‘s debt nearing levels of Egypt and Ukraine, with Argentina projected slightly better.
The IMF employs a distinctive approach to calculate Brazil’s gross debt as a percentage of GDP.
This includes counting Treasury securities held by the Central Bank, which the Brazilian government normally omits from its calculations.
This variance in methodology highlights the complexities involved in evaluating fiscal health and solvency.
These assessments are crucial for international rating agencies and economic analysts who keep track of Brazil’s economy.