The new budget outlook represents a notable deterioration from estimates published late last year. — Reuters
BRASILIA: Brazil’s government projects a sharp rise in gross debt despite an outlook for an improving primary balance, including a 0.25% of gross domestic product (GDP) surplus target for 2026 and more ambitious goals in the following years.
In its annual budget guidelines bill, which requires congressional approval, President Luiz Inacio Lula da Silva’s administration projected primary surplus targets of 0.5% of GDP in 2027, 1% in 2028 and 1.25% in 2029.
Still, gross public debt is expected to continue to rise, peaking at 84.2% of GDP in 2028, driven by high interest payments in Latin America’s largest economy.
Budget Secretary Clayton Montes acknowledged that spending and tax benefit reviews will be needed to meet the 2027 surplus target, as a waiver excluding large court-ordered federal payments from the primary balance calculation is set to expire by then.
“Necessary measures to deliver these results will be taken,” said Deputy Treasury Secretary Viviane Varga, without providing details.
The new budget outlook represents a notable deterioration from estimates published late last year, when Brazil’s Treasury forecast the gross debt-to-GDP ratio, a key indicator of a country’s solvency, to peak at 81.8% in 2027.
The revision reflects expectations of higher interest rates following an aggressive monetary tightening cycle by the central bank to curb inflation, partly fueled by government spending.
The bill forecasts the benchmark Selic interest rate to reach a cumulative 14.02% this year, 12.56% in 2026, 10.09% in 2027, 8.27% in 2028 and 7.27% in 2029.
The rate currently stands at 14.25%, and the central bank has signalled another hike in May.
The government also projected an average exchange rate of 5.97 reais to the US dollar next year and an average oil price of US$66.74 per barrel. The Brazilian real closed at 5.89 reais per dollar on Tuesday, while Brent was at US$64.67. — Reuters
