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Brazilian Government Admits That Lack Of Resources Threatens Continuity Of Essential Public Services And Projects A Critical Scenario For The Next Years, Raising Serious Concerns About The Future Of Finances And The Functioning Of The Country.
As published by Veja Magazine, in June 2017, without money in its coffers, the Federal Police suspended the issuance of passports throughout the country.
Those who planned to request the document had to wait more than a month until the government and Congress released emergency funds for the normalization of the service.
It was the first clear sign that something was wrong.
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In the following years, news of small stoppages in other federal services multiplied.
Research grants, such as those from the National Council for Scientific and Technological Development (CNPq), ended up being reduced.
The universities ran out of resources for their maintenance.
The subsidized brackets of the Minha Casa, Minha Vida program even disappeared.
And even the Census, conducted every ten years by the IBGE, suffered a postponement from 2021 to 2022 due to lack of resources.
These serious episodes represent just a sample of what is about to happen, on a much larger scale, if nothing changes in the way the country manages its public spending.
“We Are Experiencing A Rapid Flattening Of The Budget Due To Mandatory Expenses, Which Will Soon Lead Us To An Unfeasible Situation”, states Paulo Bijos, Financial Oversight Consultant for the Chamber of Deputies and Secretary of Federal Budget for Lula’s government until last year.
“The Magnitude Of The Problem Requires A Structural Adjustment, Which Will Inevitably Need To Be Made”.
The novelty now is that even the government recognizes the gravity of the problem, as was made clear last week during the announcement of the 2026 Budget Guidelines Bill.
In summary, it was a confession that the country is firmly heading towards the abyss of public accounts.
It was practically the announcement of the risk of what economists call a shutdown, or blackout of services.
Among Financial Experts, It Was Already Known That This Scenario Was A Matter Of Time.
“We Have Many Challenges Ahead”, said Fernando Haddad, the Minister of Finance, about the lack of resources.
“We Need To Open A Discussion With Society And The Judiciary On How To Address This Issue”.
Budgetary Projections For The Future
The projection contained in the budget proposal indicates that the amounts allocated for discretionary expenses — currently equivalent to 1.8% of the gross domestic product — are expected to decrease to nearly zero, reaching only 0.05% by 2029.
The scenario is so unsustainable that it led the very budget team to resort to an unusual maneuver: presenting a negative budget, something that, in practice, is impossible to execute.
By 2027, according to official estimates, the resources allocated for discretionary expenses, calculated at 122 billion reais for the year, would turn negative by 12 billion after paying the last legal obligations, such as parliamentary amendments and the minimum percentages required by the Constitution for health and education.
Next year, Lula will face difficulties in sustaining, until the end of his term, some of his main promises — such as raising the minimum wage above inflation and expanding the Popular Pharmacy program — without these initiatives starting to generate imbalances in other areas of the budget.
Meanwhile, Ministers Haddad and Simone Tebet from Planning will have to continue seeking stopgap solutions to contain the president’s expansionist impulses.
Furthermore, the scenario points to a bigger problem: a fiscal bomb programmed to explode in the lap of the next government, whether it continues Lula’s policies or not.
Urgent Need For A Fiscal Revision
On the long-term horizon, the alert remains that the country will not be able to postpone much longer the need for a deep revision of its budgetary dynamics and, ultimately, the choices that sustain it.
“There Is No Budget In The World As Rigid As The Brazilian — And It Does Not Matter Who The Next President Will Be, He Will Have An Irrevocable Meeting With A Deep Fiscal Reform”, states Marcus Pestana, Executive Director of the Independent Fiscal Institution of the Senate.
A series of services that are part of the long list of public expenditures, such as those mentioned at the beginning of this report, are funded by the so-called discretionary funds of the federal budget.
This is the only portion over which the Executive has some maneuvering room.
In practice, it is what is left after paying large mandatory expenses, such as social security benefits, salaries of civil servants, Bolsa Família, the salary bonus, unemployment insurance, and the Continuous Cash Benefit.
The problem is that this trillion-dollar package of mandatory spending continues to grow, increasingly compressing the space for free funds.
According To The Government’s Own Projections, If Nothing Is Done In Time, This Space Will Completely Disappear By 2027, the first year of the term of Lula’s successor.
“The Budget Law Has Functioned Less And Less As A Planning Tool And More And More As A Warning For The Need For Deep Fiscal Reforms”, says Jeferson Bittencourt, head of macroeconomics at ASA and former Secretary of the National Treasury.
The Villains Of Public Accounts
The imminent blackout of public finances has some loud villains under the spotlight.
One of them is parliamentary amendments — a mechanism that, in recent years, has gained its own life, draining an ever-increasing share of already scarce public resources for little traceable projects of deputies and senators.
Another pressure point is court-ordered payments, debts of the Union resulting from definitive judicial actions.
Thanks to an agreement with the Federal Supreme Court, part of these expenses has temporarily remained outside the spending cap until 2026, but the bill continues to accumulate.
For 2027, the government estimates a bill of 57 billion reais in amendments and another 124 billion in court-ordered payments.
The result of this combination is the erosion of discretionary funds — currently budgeted at 200 billion reais.
Even in a hypothetical scenario without parliamentary amendments and without court-ordered payments, the tight budget blanket would inevitably continue to challenge any government.
Paths To The Solution
To tackle the problem, experts point to a list of structural expenses that simply do not fit into the budget without the government resorting to two equally unpalatable alternatives: further increasing the tax burden, which Brazilian society shows it will not accept, or continuing to expand public debt, which investors, who finance this bill, also reject.
This leaves the option of revising expenditures.
Among the most discussed measures is unlinking social security and social benefits, such as retirements and the Continuous Cash Benefit, from the minimum wage — which, under President Lula, has been adjusted above inflation once again.
Another sensitive point is the budgets for health and education, whose rules were established in the 1988 Constitution and set mandatory floors that grow at a pace higher than available resources.
“It Is Necessary To Review These Expenses And Advance With A Budgetary Reform To Regain Control Over Public Finances”, affirms Felipe Salto, Chief Economist at Warren Investimentos and a specialist in fiscal policy.
“Today, The Budget Operates On Autopilot, Without Any Effective Planning”.
The budget blackout, which seemed a distant threat, now has a date to arrive.
If nothing is done, the country will watch, impotently, as essential services come to a halt, while the fiscal bomb, long since armed, will explode in the hands of the next president.
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