(Adds IMF official comments)
BRASILIA, May 12 (Reuters) - Brazil must do more to achieve its 2015 fiscal savings goal and needs deep economic reforms to foster stronger growth, the International Monetary Fund said on Tuesday.
In its annual assessment, the IMF cited government missteps that have dragged the once-booming Brazilian economy toward an expected recession this year, but it endorsed the more orthodox policies of new Finance Minister Joaquim Levy.
An IMF official said it is crucial for Brazil to meet its 2015 primary surplus goal to regain investors’ confidence. The primary surplus, or excess revenues before interest payments on debt, is a key gauge of capacity to repay debt.
“Given the weak underlying fiscal position in 2014, the fiscal target of 1.2 percent of GDP for 2015 is appropriate, but further measures will be needed to meet this target,” said the report, which was completed on March 4 when the bulk of the savings measures had already been announced.
IMF official told reporters later the size of the upcoming budget freeze will help clarify whether the government needs to tighten the belt further to reach the goal this year.
Faced with crumbling business confidence shortly after re-election in October, President Dilma Rousseff picked fiscal hawk Levy to rebalance public accounts after years of unchecked spending.
Levy has led an unpopular austerity push that has raised taxes on cosmetics and imports, and has severely cut spending on government programs.
Levy has warned the administration is ready to hike taxes again, raising complaints from business and union leaders as well as some politicians who believe austerity will deepen the recession.
In talks with IMF staffers, Brazilian officials said fiscal adjustment would be implemented in two years.
The IMF said Rousseff needs to push ahead with structural reforms to reduce the cost of doing business in Brazil and improve productivity.
“Structural reforms are critical for improving the economy’s productive capacity and to anchor strong, sustained, and balanced growth over the medium term,” the IMF said.
However, reforms to overhaul generous pension and unemployment benefits are already facing tough resistance from Rousseff’s allies in Congress. One of the measures to reduce pension benefits is expected to be voted on Wednesday.
The IMF cited other reforms such as a simplification of some Brazilian taxes. Officials told IMF staffers the government saw no immediate need to alter a controversial formula to adjust the minimum wage that is based on gross domestic product and inflation. (Reporting by Alonso Soto; Editing by Peter Galloway and Richard Chang)