Brazil's fiscal framework unsustainable by 2027, minister warns
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FILE PHOTO: Brazil's Planning and Budget Minister Simone Tebet attends an interview with Reuters in Brasilia, Brazil May 7, 2024. REUTERS/Adriano Machado/File Photo
BRASILIA (Reuters) - Brazil's planning minister said that the federal government, regardless of who is in power, will be unable to govern under the current fiscal framework in 2027, signaling a "window of opportunity" late next year for fiscal adjustments.
The fiscal rules, passed early in leftist President Luiz Inacio Lula da Silva's term in 2023, combines primary budget balance targets with a spending cap allowing expenditures to grow up to 2.5% above inflation.
With mandatory expenditures rising at a faster pace, public finance experts warn the framework will become unsustainable within a few years unless structural spending cuts are made.
The challenge will intensify in 2027, when the full cost of hefty court-ordered payments will count toward primary expenses. Currently, with Supreme Court approval, only part of these payments affects the primary balance.
"In 2027, whoever is president will not be able to govern under this fiscal framework without fueling inflation, increasing public debt, and derailing the economy," Simone Tebet told GloboNews in an interview aired late on Wednesday.
She noted that Congress is unlikely to approve any fiscal adjustment measures before the 2026 general election, as lawmakers will be focused on their re-election prospects.
As a result, Tebet sees a brief window in the last two months of next year - Lula's final in his current term - to discuss post-election spending containment measures, stressing that Brazil must seize the opportunity for necessary fiscal adjustments.
She also reaffirmed the government's commitment to meeting this year's zero primary deficit target.
(Reporting by Fernando Cardoso, Writing by Marcela Ayres; Editing by Chizu Nomiyama)
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