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This adverse diagnosis is included in the Fiscal Monitoring Report (RAF), published at the end of last month by the Independent Fiscal Institution (IFI), an entity linked to the federal Senate.
The primary deficits – federal spending exceeds revenue from taxes and levies, except for the payment of interest and charges on public debt – are expected to continue indefinitely, while the federal public debt will follow the current upward trajectory.
The alarming diagnosis is included in the Fiscal Monitoring Report (RAF) published at the end of last May by the Independent Fiscal Institution (IFI), an entity linked to the federal Senate, projecting that, in a few years, the Gross General Government Debt (DBGG) should correspond to 90% of GDP, or approximately R$ 10.53 trillion.
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‘Swelling’ of debt reflects monetary tightening and primary deficits
According to the IFI, the ‘swelling’ of the DBGG is a reflection of two fundamental factors: high interest rates – the country ranks second in the world in real rates (9.33%), narrowly losing to Russia, at war with Ukraine for four years, (9.60%) – and the recurring primary deficits.
The Bimonthly Revenue and Expenditure Assessment Report (RARDP) of the Ministry of Finance projects, for this year, a primary deficit, by the central government concept, of around R$ 59.8 billion – resulting from a projected net revenue of R$ 2.576 trillion, against expenses totaling R$ 2.636 trillion. The official justification is that the advance of the deficit reflects the growth of mandatory expenses and payments of court-ordered debts.
Debt dynamics contain distinct scenarios
In the medium term, the RARDP established that the debt dynamics should be divided into distinct scenarios:
Debt on the rise: the Union’s debt ends projections fluctuating between 77% to 82% of GDP and, depending on economic assumptions, it may reach the 100% of GDP mark between 2029 and 2030.
Pessimistic scenario: in estimates where expenses exceed revenues more intensely, the gross debt advances rapidly and may surpass 100% of GDP by the end of the decade.
Required fiscal effort: to stabilize public debt at levels close to 79% of GDP, the Independent Fiscal Institution calculates that the public sector would need to achieve a primary surplus of around 2.1% of GDP per year.
According to the IFI, the validity of the fiscal framework – which replaced the previous, successful, and effective Fiscal Responsibility Law (FRL) – only remains because, to meet fiscal targets, the government makes use of legal discounts provided in the legislation, by removing some expenses from the official calculation of the primary result.
The country’s fiscal management presents ‘precarious balance’
By classifying the current fiscal management of the country as ‘precarious balance’, IFI directors, Marcus Pestana and Alexandre Andrade, who sign the report, admit that the imminence of general elections reduces the possibility of more effective fiscal adjustment measures.
At the same time, the study notes that the rise in oil prices, due to the war in the Middle East, opened the way for the government to adopt ‘mitigating measures’, tax exemptions, and granting of subsidies.
“Besides the voting on the 2027 Budget Guidelines Bill (PLDO 2027) and the Annual Budget Law (LOA 2027), we will only have inevitable decisions, such as the regulation of the Selective Tax (IS), which will replace, next year, the Tax on Industrialized Products (IPI), as provided for in the Tax Reform,” wrote Pestana and Andrade.
‘Serious’ fiscal/budgetary restructuring postponed to another term
With the prediction that a ‘serious’ process of fiscal and budgetary restructuring ended up being ‘postponed’ to the next presidential term, the report points out that the set of urban and rural retirements, as well as the expansion of benefits, such as temporary incapacity assistance, exerts additional pressure on public accounts.
After the structural reform of 2019, the expenses of the General Social Security System (RGPS) resumed growth, in real terms, especially from 2021. According to the RAF, social security expenses corresponded, in 2025, to 8.1% of GDP and 42.9% of the total primary expenses of the Union.
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