BY COMFORT OGBONNA
Brazil’s Treasury has warned that the country’s fiscal targets are likely to become unattainable beginning in 2028 unless new measures are introduced to address rising government spending, signaling growing pressure on the nation’s public finances over the coming years.
The assessment, released on Tuesday, stated that mandatory government expenditures are expected to continue growing at a pace that exceeds the government’s ability to offset costs through spending cuts alone. Even if authorities implement the maximum allowable freezes on discretionary spending, the Treasury said the country’s current fiscal goals would still be out of reach.
The warning comes as economists and financial markets continue to call for stronger fiscal discipline amid rising public debt during President Luiz Inácio Lula da Silva’s administration. Investors have increasingly demanded higher returns on Brazilian government debt as concerns mount over expanding public spending and the long-term sustainability of the country’s finances.
Brazil is currently aiming to achieve a primary budget surplus—excluding interest payments—equivalent to 0.25% of gross domestic product (GDP) this year, rising to 0.5% in 2027. However, the country’s fiscal framework includes a tolerance band and allows certain expenditures, such as portions of court-ordered payments, to be excluded from the calculations.
As a result, the government can still comply with its fiscal rules even if it records a primary deficit of up to 0.5% of GDP this year and as much as 0.2% of GDP in 2027.
The Treasury’s latest projections estimate Brazil will post a primary deficit of 0.4% of GDP in 2026, followed by a deficit of 0.1% in 2027. These forecasts assume that all currently approved revenue measures remain in place and that government spending continues to follow the limits established under the existing fiscal framework.
Beyond 2027, however, the outlook becomes considerably more challenging. Between 2028 and 2030, the Treasury expects primary surpluses to range between just 0.2% and 0.3% of GDP. Those figures fall well below the government’s official fiscal targets, which call for surpluses between 1.0% and 1.5% of GDP during the same period.
The Treasury said the projections clearly demonstrate that additional fiscal reforms will be required, emphasizing that spending freezes by themselves will not be enough to close the gap between projected results and official targets.
Brazil’s current fiscal framework, approved in 2023 under President Lula’s administration, limits annual growth in federal spending to a maximum of 2.5% above the inflation rate. While the rule is intended to promote fiscal responsibility, mandatory expenditures—including pensions, social benefits, and other legally protected programs—are increasing more rapidly than the spending cap allows, leaving progressively less room for discretionary investments and government operations.
According to Treasury estimates, the resulting funding shortfalls could reach 10 billion reais (approximately $1.94 billion) in 2028. The gap is projected to widen significantly to 80.6 billion reais in 2029 before climbing further to 136.4 billion reais by 2030 if no corrective measures are implemented.
The report also highlighted constitutional spending requirements for health care and education as an additional source of fiscal pressure. These minimum funding obligations, which were reinstated in 2023, limit the government’s flexibility to adjust expenditures during periods of budget strain.
Meanwhile, Brazil’s debt burden is expected to continue rising over the next several years. The Treasury projects the country’s gross public debt will reach 83.5% of GDP this year, representing an increase of 11.8 percentage points since President Lula began his third, non-consecutive term in office.
Looking further ahead, gross debt is forecast to peak at approximately 87.9% of GDP in 2029 before gradually declining over the following years. Under current projections, the debt ratio would ease to around 83.1% of GDP by 2036, provided the government successfully maintains its fiscal framework and introduces additional measures to strengthen the country’s long-term budget position.
The Treasury’s latest outlook underscores the growing challenge facing Brazilian policymakers as they seek to balance economic growth, social spending commitments, and investor confidence while preventing public debt from rising to unsustainable levels.
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