Debate over economist André Lara Resende’s plan has helped fuel calls on social media among supporters of Brazil’s Workers’ Party (PT) for a campaign against high interest rates. But, columnist Adriana Fernandes argues, that pressure does not resolve the uncertainty surrounding the country’s fiscal policy.
President Lula’s immediate challenge, following his re-election, is to provide a clearer signal about how the government intends to put the public finances on a more predictable path. That means specifying whether an adjustment would rely on higher revenues, lower spending, or both, and whether it would be gradual or faster.
The most urgent step is to settle the 2027 budget. The government’s proposal targets a primary surplus of 0.13% of GDP, or R$18.6 billion, next year. At the same time, its latest revenue and spending report projected a deficit of 0.59% of GDP, or R$80.9 billion, for this year. If Congress approves the budget scenario, the government would need an adjustment of nearly R$100 billion in Lula’s first year of a new term.
Financial markets are not convinced by the proposed target and expect a deficit of 0.4% of GDP in 2027. Fernandes notes that markets see the government’s approach as too gradual given the growth of public debt. For the government, however, the adjustment would be substantial at a time when the economy is slowing and inflation is rising, with oil prices, El Niño, uncertainty over tax reform and a shorter working week also posing challenges.
The debate reflects competing expectations: financial markets are likely to seek a larger adjustment, while parts of the PT’s left wing want less than the economic team has proposed and Lula has submitted in the budget. Fernandes says the disagreement is also part of the contest over who will become the next finance minister. Although there is broad agreement that the fiscal problem needs to be addressed, she writes, there is no political consensus on how to do it.
Sources: Folha Mercado.