Brazil’s government is facing increasing scrutiny as it adopts unconventional measures to meet its year-end budget target, raising concerns over the credibility of its new fiscal regime. With just a few months left in 2024, experts are growing uneasy about President Luiz Inácio Lula da Silva’s reluctance to reduce spending and instead, relying on inventive methods to generate revenue and reduce costs.
Rather than trimming social programs, Lula’s administration has introduced a range of temporary revenue-boosting strategies. These include tapping into dormant bank accounts, using state banks to fund subsidies, and even granting new tax exemptions for Olympic medalists. While these efforts aim to close the budget gap, critics argue that such creative accounting practices risk undermining Brazil’s fiscal credibility.
The Brazilian Finance Ministry, however, remains committed to hitting the target while upholding fiscal discipline. The Ministry assured the public that it is rigorously following fiscal rules to ensure the sustainability of public accounts. Yet, many economists are skeptical. Marcos Mendes, a researcher at the Insper Institute, warns that these temporary fixes resemble past fiscal mismanagement under previous administrations, which could negatively affect investor confidence.
Lula’s government had promised to eliminate the primary deficit—excluding debt payments—by the end of this year and implement a broader fiscal framework by 2026. However, private economists doubt this goal can be achieved, projecting a primary deficit of 0.6% of GDP, despite Lula’s efforts.
According to a report by Reuters, experts caution that focusing on one-off revenue streams instead of structural changes to public spending could harm Brazil’s fiscal health in the long run. Former Treasury Secretary Jeferson Bittencourt voiced concerns that such maneuvers only serve to weaken the credibility of the government’s fiscal targets.
As Brazil navigates its economic challenges, it remains to be seen whether short-term fixes can pave the way for sustainable fiscal reform.
