UPDATE 2-IMF urges Brazil to step up austerity to shield recovery

jueves 29 de septiembre de 2016 16:53 GYT

(Adds IMF recommendations, government official comments and context)

By Alonso Soto

BRASILIA, Sept 29 (Reuters) - The International Monetary Fund on Thursday called on Brazil's new government to step up efforts to close a yawning fiscal gap, recommending tough policy changes for Latin America's biggest economy to pull out of a bruising recession.

In the preliminary findings, the IMF warned that substantial changes to fiscal reforms in Congress could threaten the country's gradual recovery from a two-year recession that has slowed the reduction of social inequalities due to income.

"If key reforms are watered down or get stalled in Congress, the boost to confidence will be short lived, and the recession may continue," the IMF wrote in a summary ahead of the full report expected in coming months.

To protect that recovery, the IMF urged Brazil to frontload measures to rebalance its public accounts whose dramatic erosion in recent years has raised fears about the country's ability to repay its debt.

In an unusually detailed menu of recommendations, the IMF said Brazil should aim to reach a primary budget surplus goal of 3.5 percent of its gross domestic product in five years and also consider revenue measures to shore up its accounts.

The primary balance, or budget result prior to interest debt payments, is a key gauge of a country's financial health.

Once flushed with cash during a decade-long commodity boom, Brazil is now struggling to plug a primary deficit that is expected to reach a record 2.65 percent of GDP this year.   Continuación...