Significant fiscal reforms are necessary for Brazil's debt to fall steadily, says IMF

The International Monetary Fund (IMF) assessed this Monday (1) that the Brazilian government has taken measures to improve the situation of public accounts, but added that "significant fiscal reforms" are still necessary to put public debt on a firm downward path.
🔎The institution recently sent a mission to Brazil to analyze the country's policies and economic prospects, based on a guideline that consists of regular visits to member countries. At the end of each mission, the IMF releases a statement.
🔎🔎Fiscal reforms are structural changes to the laws that govern how the State collects resources (taxes) and how it spends them (expenses). They can have different focuses: bureaucratic simplification, social justice, economic stimulus or balancing public accounts.
The IMF says that preserving extraordinary revenues related to oil and "implementing a more ambitious fiscal effort" would increase "fiscal credibility, reduce borrowing costs and create space for priority investments."
The institution reported, however, that the Brazilian economy has shown itself to be "remarkably resilient in the face of multiple shocks". Central reduced the basic interest rate in March and April in an "appropriate" manner in "consonance with Brazil's inflation targeting regime".
🔎Public debt is the total amount of money that the government borrows to finance its expenses when tax collection is not enough to cover all expenses.
This is the highest level for public debt since June 2021, when it totaled 80.6% of GDP, that is, it is the highest level in almost five years.
In the accumulated result of the government of President Luiz Inácio Lula da Silva (PT), that is, in just over three years, the debt has already advanced 8.7 percentage points. The rise in debt is mainly related to the increase in public spending and interest expenses.
➡️For the International Monetary Fund (IMF) - which considers public bonds in the BC's portfolio - Brazilian debt was much higher in April: 93.1% of GDP.
🔎The proportion to GDP is considered by experts as the most appropriate concept for measuring and comparing the debt of nations. And the calculation format of the International Monetary Fund (IMF) is adopted internationally.
➡️Greater than 90% of GDP, the level of Brazilian debt is well above that of emerging nations and South American countries, also higher than the average of Euro Zone nations (according to IMF data).
To try to contain the growth of debt, in 2023 the government approved the so-called "fiscal framework", that is, new rules for public accounts replacing the spending ceiling. According to these rules:
expenditure cannot register growth greater than 70% of the increase in revenue;
the increase in spending is limited, in real terms, to 2.5% per year;
the framework seeks precisely to contain the growth of public debt in the future.
Without a robust cut in expenditure, necessary to keep the fiscal framework standing, public accounts experts estimate that the rule will have to be abandoned, or changed, in the next years.
🔎They argue that, in the current format, the rules will become unsustainable.
Because of this, they predict a greater expansion of public debt in the future, which could result in an increase in interest rates charged by financial institutions to the real sector of the economy.
Financial market analysts estimated, last week, that Brazilian public debt should reach 99.4% of GDP in 2035 (according to the Brazilian concept) - a level very distant from emerging countries and closer of Europe.
➡️According to the concept adopted by the IMF, Brazilian debt would be close to 110% of GDP in 2035.
IMF Headquarters in Washington
Reuters

Source: G1