Brazil signals push for higher primary surplus next year

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Brazil signals higher surplus

Highlights

Brazil signals its intention to achieve a higher primary surplus in 2025, exceeding the currently targeted 0.5% of GDP.
The administration will submit legislation this year mandating policymakers aim for the midpoint of the primary balance target tolerance band.
Brazil's gross public debt has risen over 10 percentage points during Lula's term to 82.9% of GDP, intensifying investor concerns about fiscal sustainability.

Fiscal target shift and policy response

As reported by Reuters, citing Broadcast, Durigan says the government will pursue a higher effective primary surplus next year, although he does not specify a new figure.

He also says the administration plans to send legislation to Congress this year requiring policymakers to formally target the midpoint of the primary balance goal. Brazil's fiscal target for next year calls for a primary surplus, excluding interest payments, of 0.5% of GDP, with a tolerance band of 0.25 percentage point on either side.

Under the fiscal framework, the government can exclude certain expenditures when assessing compliance, especially part of its stock of court-ordered debt payments. In August, the government projected an effective primary surplus of 0.1% of GDP for next year, which, if achieved, would mark Brazil's first fiscal surplus since 2022.

Market pressure and debt implications

Durigan says the Treasury intervenes in the government bond market on Monday by canceling scheduled debt auctions and conducting extraordinary buyback operations to ensure rationality in trading after a sharp jump in long-term interest rate futures triggered by the election.

The comments come after a sweeping selloff across Brazilian markets driven by fiscal concerns over the reelection of leftist President Luiz Inacio Lula da Silva. Most investors and economists view the current pace of fiscal consolidation as too slow because mandatory spending is growing rapidly, leading investors to demand higher premiums to hold Brazilian debt.

Brazil's gross public debt, the government's main solvency indicator, is up more than 10 percentage points during Lula's current term to 82.9% of GDP.

In our earlier coverage of the Ibovespa’s post-election selloff, we noted that the index plunged sharply after President Luiz Inácio Lula da Silva’s re-election, triggering circuit breakers and intensified market intervention amid heightened volatility. The report highlighted persistent selling pressure and uncertainty over the policy outlook, alongside key technical levels traders were watching for signs of stabilization or further downside.

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