Guedes criticizes IMF report that points to fiscal problems in Brazil

posted on 10/13/2022 03:55


(credit: NICHOLAS KAMM)

The Minister of Economy, Paulo Guedes, reacted with irritation to a report from the International Monetary Fund (IMF) that points out fiscal problems in the Brazilian economy. Guedes said that the IMF “has to talk less nonsense”, commenting on the organization’s calculations indicating that the Brazilian government could have spent half of what was spent on emergency aid during the covid-19 crisis. Instead of “pulling the ear” of Brazil, he said, the IMF should warn the United States and Europe that “are sleeping at the wheel”, in reference to difficulties in terms of growth and escalating inflation.

“I find this very interesting. I mean, six months ago, everyone was saying that Brazilians are going hungry, and then the IMF says that spending could be lower,” Guedes stressed, in an interview with journalists, after participating in a conference of JP Morgan, which takes place amid the annual meetings of the IMF and the World Bank, in Washington. “The IMF has to talk less nonsense and work a little more to alert the Americans, the Europeans, right?”, he amended. After criticizing the organization, Guedes lightened his tone. “I don’t think the IMF is against Brazil, but it is technically wrong,” he said.

The fund recognizes that, without emergency aid, Brazil would have experienced a greater loss of income, and estimates that the fiscal cost of the benefit granted by the Brazilian government during the pandemic reached 4% of the country’s Gross Domestic Product (GDP) between 2020 and 2021. In an alternative scenario, however, he pointed out that a program with smaller benefits, of about a third of the amount granted, would still protect the general population, but at a 50% lower cost, according to the Fiscal Monitor report, which assesses the situation of public accounts of member countries, published yesterday.

The document predicts that Brazil should present a primary surplus of 0.8% this year and that the total debt of the Brazilian government should fall. The institution expects the ratio between gross debt and Gross Domestic Product (GDP) — one of the main indicators of a country’s solvency and closely evaluated by credit rating agencies — of the country to decrease to 88.2% this year ( compared to 93% in 2021). If the scenario outlined by the fund materializes, it would be the best result since 2016. Even so, debt will remain among the largest compared to emerging peers, behind only Egypt’s.

Short life

The improvement in IMF projections is, however, short-lived. The fund sees Brazil with an increase in gross debt and with accounts in the red for the next two years, resuming balance only in 2025. One of the reasons is the increase in spending by the government of Jair Bolsonaro on the eve of the elections, among them raising Auxílio Brasil to R$ 600. For the organization, the fiscal impact will begin to appear in the first year of the future government. The fund expects the country’s primary deficit to reach 0.8% in 2023 and fall to 0.3% the following year.

“The benefits were three times the standard social benefit and more than half the national minimum wage,” says the IMF in the Fiscal Monitor report.

For the multilateral body, the stabilizing effects of the emergency aid program in Brazil “far exceeded” those of the social protection system in place before the pandemic. Simulations show that, on average, per capita disposable income in Brazil rose 2.1% in 2020, according to the organization. As a result, the IMF claims that the poverty rate and the Gini index, which measures inequality in disposable income, have dropped “temporarily” in 2020.

In a scenario without emergency aid, according to the IMF, only a quarter of the loss of income would have been absorbed. The average disposable income per capita would have decreased by 4.1%, according to the institution’s technicians.

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