A budget made in Hogwarts

BRAZIL ECONOMICS - Report 08 Sep 2025 by Alexandre Schwartsman, Cristina Pinotti and Diego Brandao

The administration has proposed a budget that, under optimistic assumptions, would result in a primary deficit of 0.17% of GDP in 2026. The projections rely on favorable revenue scenarios, which depend both on supportive economic conditions and on the approval by Congress of politically sensitive measures, including tax hikes, a topic with low acceptance in the parliament.

On the other hand, expenditures include new spending outside the cap, hence, without structural reforms in sight, discretionary spending will remain under pressure. The approval of PEC 66/2023 further worsens the scenario by adding BRL 12 billion to the spending cap, excluding judicial sentence payments from the ceiling, and allowing for the slow incorporation of court-ordered debt payments (precatórios) into the fiscal rule. The result will be the continued increase in the debt-to-GDP ratio, despite renewed official projections promising stability.

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