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BRAZIL ECONOMICS - Report 22 Jun 2026 by Alexandre Schwartsman, Cristina Pinotti and Diego Brandao

Public debt remains on an upward trajectory, and, given the current fiscal policy, we see no signs of reversal. Stabilizing it requires a substantial primary surplus, far removed from the deficit the government is expected to deliver this year and next. To keep debt to GDP constant over the long term, an adjustment of at least BRL 340 billion would be needed, under optimistic assumptions, or BRL 475 billion under more realistic assumptions. Instead of addressing the problem, the government is increasing spending, tax expenditures and subsidized credit, while Congress moves forward with new spending measures. Debt dynamics will depend on the election result, but as long as there is no adjustment, persistent inflation, high real interest rates and rising debt will remain direct consequences of fiscal policy. We do not see the current administration as committed to, or capable of, changing the stance of fiscal policy. A change in power is a necessary, but not sufficient, condition for this to materialize.

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