IMF says strengthening fiscal framework and expanding tax base will give government credibility – 05/16/2023 – Market

The IMF (International Monetary Fund) supported the government in its plans for a new fiscal framework and to expand the tax base in a note released this Tuesday (16).

Technicians from the international organization met this Tuesday morning with the Minister of Finance, Fernando Haddad (PT), for a periodic assessment he makes of member countries.

“We strongly support the authorities’ commitment to improving Brazil’s fiscal position. Strengthening the fiscal framework, broadening the tax base and addressing spending rigidity would support sustainability and credibility while providing flexibility, including to meet new priority spending “, said the IMF in a note after the meeting.

The report of the project that changes the Brazilian tax rules was presented this Tuesday by federal deputy Cláudio Cajado (PP-BA), rapporteur of the text. His expectation is to approve the urgency of the project this Wednesday (17) and the text as a whole next week.

In the text, the fund also defends the monetary policy of the Central Bank, which was repeatedly attacked by President Luiz Inácio Lula da Silva (PT) for keeping interest rates at 13.75% per annum.

“Monetary policy is consistent with reducing inflation to the target, in line with the inflation targeting regime that has served Brazil well,” assessed the IMF.

“Lowering inflation is crucial to protecting vulnerable families, who are the most harmed by high inflation,” he said in a note.

For the IMF, inflation declined rapidly from the peak reached last year, but its core remains high and expectations have gradually risen. “Inflation should converge to the target by mid-2025.”

The organization criticized, however, the possibility of greater participation of public banks in the economy. The situation “must be carefully managed to mitigate risks to fiscal sustainability and the transmission of monetary policy”, he analyzed.

Another point highlighted by the IMF was tax reform. “Approval of the authorities’ tax reform project would considerably simplify the tax regime and could increase potential output,” he opined.

In its assessment, the fund revised upwards its projection for growth of the Brazilian GDP (Gross Domestic Product) for 2023, from 0.9% made in April to 1.2%. In 2024, the new IMF forecast is for growth of 1.4%, compared to the previous estimate of 1.5%.

“The economy’s growth is moderating, but it is expected to gain strength from next year. Projections indicate a moderation in growth, from 2.9% in 2022 to 1.2% in 2023. We project an improvement in growth for 1.4% in 2024 and 2% in the medium term”, he evaluated.

Another point highlighted by the IMF was the “ambitious agenda to foster a sustainable, inclusive and green economy”.

“We support the authorities’ plans to bolster climate resilience, stop illegal deforestation and decarbonize the economy,” the fund concluded.