By Marcela Ayres
BRASILIA, June 30 (Reuters) – Brazil’s Treasury said on Tuesday that fiscal targets will become unfeasible from 2028 without new measures, as rising mandatory spending outpaces efforts to contain costs even with maximum freezes on discretionary outlays.
The warning comes as economists call for stronger fiscal discipline amid rising public debt under President Luiz Inacio Lula da Silva, with investors demanding higher risk premiums to finance expanding government spending.
Brazil is targeting a primary surplus of 0.25% of gross domestic product this year and 0.5% in 2027, with a tolerance band and exclusions for certain expenses, including part of court-ordered payments.
In practice, this allows deficits of up to 0.5% of GDP this year and 0.2% in 2027 while still complying with the rules, according to the Treasury.
It projects a primary deficit of 0.4% of GDP in 2026 and 0.1% in 2027, incorporating currently legislated revenue measures and spending capped under its fiscal rules.
From 2028 to 2030, however, projected surpluses of 0.2%-0.3% of GDP fall far short of official targets of 1.0% to 1.5% of GDP, even when all legal adjustments are considered.
“The scenario highlights the need for new fiscal measures,” the Treasury said, noting spending freezes alone will not suffice.
Under a fiscal framework Lula approved in 2023, spending growth is capped at up to 2.5% above inflation, but mandatory expenses — such as pensions and benefits — are rising faster, squeezing discretionary space. The Treasury estimates funding gaps of 10 billion reais ($1.94 billion) in 2028, rising to 80.6 billion reais in 2029 and 136.4 billion reais by 2030.
It also flagged constitutional spending floors for health and education, reinstated in 2023, as an additional source of pressure.
The Treasury projected gross debt will reach 83.5% of GDP this year, implying an increase of 11.8 percentage points since Lula began his third non-consecutive term.
Debt is expected to peak at 87.9% of GDP in 2029 before gradually declining to 83.1% by 2036, it added.
($1 = 5.1598 reais)
(Reporting by Marcela Ayres in Brasilia; Editing by Chris Reese)
