Bad moon rising
Brazil’s fiscal situation is fragile and requires deep adjustments. Although the government should meet its target in 2025, not only has the target itself lost its meaning, but—yet more importantly—the result remains far from satisfactory, with a growing primary deficit feeding the rapid expansion of public debt. For 2026, the outlook is even more unfavorable, and our projection points to a deficit larger than this year’s. The fiscal path from 2027 onward will depend crucially on the election outcome. In the event of Lula’s reelection, there is no reason to anticipate any change in the orientation of fiscal policy. Even with a change in government, the magnitude of the challenge suggests that fiscal risks will remain significant.
The government projects a primary deficit of R$ 75.7 billion, according to the Bimonthly Revenue and Expenditure Report. Considering the impoundment of some expenditures, the effective deficit should reach close to R$ 70 billion, an increase of around R$ 25 billion, at current prices, compared to last year’s deficit. As a share of GDP, the primary deficit should rise from 0.4% in 2024 to 0.6% in 2025.
It is important to stress that this larger deficit still complies with the target set by the government, which, however, has long ceased to make any real sense. In addition to allowing the deduction of a range of expenditures, the government also aims for the lower bound of the fiscal band. It suffices to compare the numbers just described with the supposed target of a zero primary balance for this year.
That said, it should also be clear that such an objective falls far short of what is required to sustainably stabilize public debt.
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