Key facts
- A government source said the fiscal adjustment would equal 0.5% of GDP in 2027.
- The source said the adjustment would amount to 70 billion to 80 billion reais next year.
- The plan may include excluding extraordinary revenue from health and education spending floor calculations.
- A new cut to tax benefits could be another pillar, according to the source.
- The central bank held the Selic at 13.75% after pausing its easing cycle last week.
- Gross public debt reached 82.9% of GDP, up more than 10 percentage points in Lula's term.
Brazil will unveil measures in the next few days aimed at a fiscal adjustment equivalent to 0.5% of gross domestic product in 2027, a government source said on Tuesday, according to Reuters.
The plan follows a selloff in Brazilian financial markets after President Luiz Inacio Lula da Silva's reelection late in October, as investors questioned whether a fiscal adjustment sufficient to stabilize public debt would materialize.
One measure would exclude extraordinary revenue from the basis for calculating the constitutional spending floors for health and education, even when there is a surplus, the source said. Another pillar, which the source said would amount to between 70 billion reais and 80 billion reais ($12.5 billion to $14.3 billion) next year, could be a new cut to tax benefits.
A bill with the measures is set to be presented by a government-backed lawmaker rather than directly by the government, the source added. The finance ministry did not immediately respond to a request for comment. Local news outlet G1 first reported the government's plan for a fiscal adjustment bill.
In a televised address on Sunday, Lula reaffirmed his commitment to fiscal responsibility and said he wanted to help bring down high interest rates. The central bank paused an easing cycle last week, keeping the Selic benchmark at 13.75% as it dealt with a worsening inflation outlook that some analysts say has been worsened by market fears over a declining fiscal policy scenario.
Brazil's real has weakened, long-term interest rates have risen and the benchmark Bovespa stock index has slumped since Lula's election victory on October 25, when he defeated right-wing Senator Flavio Bolsonaro in a surprise runoff turnaround. Gross public debt has risen more than 10 percentage points during Lula's current term to reach 82.9% of GDP.