In a significant shift in fiscal policy, Brazil’s government has revised its targets, aiming for a primary deficit of zero for the year 2025. This decision, formalized in the budget guidelines bill jointly presented by the Finance and Planning ministries, marks a departure from the previously suggested 2025 surplus of 0.5% of gross domestic product (GDP).
Under the revised plan, authorities now anticipate achieving a primary surplus of 0.25% of GDP in 2026, with projections increasing to 0.5% in 2027 and 1% in 2028. This adjustment represents a relaxation from earlier forecasts, which had aimed for a more aggressive surplus as early as 2026, the final year of President Luiz Inacio Lula da Silva’s administration.
Finance Minister Fernando Haddad emphasized that despite the adjustment, inflation in Brazil remains under control. He highlighted the importance of maintaining growth within the target range to simplify the management of public debt.
However, the announcement coincided with a challenging international environment, contributing to a decline in the value of the Brazilian real. Following Haddad’s remarks, the currency weakened past 5.20 per dollar in spot trading, reaching its lowest levels since October 2023. Factors such as robust U.S. economic data and tensions in the Middle East also played a role in the currency’s depreciation.
The government’s fiscal adjustment comes in the wake of a new framework introduced last year, which aimed to constrain spending growth while pursuing primary budget targets. Initially, the government had set targets to eliminate the primary deficit in 2025, followed by surpluses in subsequent years. However, the recent adjustment reflects a pragmatic response to evolving economic conditions both domestically and internationally.
Brazil’s fiscal strategy now faces scrutiny amid concerns about the implications of the revised targets on debt sustainability and economic stability. As the government recalibrates its fiscal trajectory, attention will turn to its ability to navigate a complex economic landscape while balancing the imperatives of growth, stability, and fiscal prudence.
