Brazilian Government Reaffirms Commitment to Fiscal Balance

SAO PAULO (Reuters) – Brazilian government officials on Wednesday reaffirmed their commitment to balancing public accounts as financial markets continue to question President Luiz Inacio Lula da Silva’s administration’s ability to meet its fiscal targets.

Lula’s chief of staff, Rui Costa, and Treasury Secretary Rogerio Ceron spoke in favor of fiscal balance, indicating potential new spending containment measures to achieve previously set goals.

The government claims it likely ended last year with a deficit of 0.1% of GDP, within its zero-deficit target that allowed a 0.25% margin in either direction.

However, uncertainties regarding future fiscal targets and analysts projecting a rising debt trajectory have negatively impacted market sentiment, weakening Brazil’s currency.

Costa noted, “The president has reaffirmed and has been fulfilling his commitment to fiscal balance,” in an interview with TV Brasil. He added, “When needed, we will make necessary adjustments to meet the fiscal commitment. The government can only spend what it collects; otherwise, it generates inflation and bad expectations.”

A long-anticipated spending cuts package disappointed markets late last year, further weakening Brazil’s real, affecting inflation expectations and contributing to the central bank’s monetary policy tightening.

Itau economists mentioned on Tuesday that the credibility of the government’s fiscal framework for creating sustainable fiscal trajectories in the medium term had “deteriorated significantly”. They noted that the rule might not stabilize public debt without a substantial revenue increase.

Ceron contested market views and echoed Costa, reaffirming the government’s commitment to fiscal rules. “Our greatest divergence with the market is that it believes there is a large gap for us to meet the fiscal target this year, so new measures would be needed,” he stated on radio station Gaucha.

“But the targets will be met. If measures are needed, they will be taken. Our commitment to meeting fiscal targets is guaranteed, just like we achieved them in 2024.”

($1 = 6.0028 reais)