Giving Birth to a Mouse

BRAZIL ECONOMICS - Report 25 Nov 2024 by Alexandre Schwartsman, Cristina Pinotti and Diego Brandao

Since 2023, the public debt, which had been on a declining trajectory, began to increase again. Projections for interest rates and primary results indicate that this trend will persist for several years. To stabilize the debt relative to GDP, a surplus of at least 2% of GDP will be necessary under optimistic assumptions. In 2025, this figure would be equivalent to approximately R$ 250 billion, implying the need for a fiscal adjustment close to R$ 315 billion.

Evidently, such an adjustment cannot and should not be achieved in just one year but rather spread over time through a credible program. Current indications, however, suggest we are heading in the opposite direction, toward an even larger fiscal deficit next year. Reports about the government’s fiscal package indicate that doubts about debt sustainability are likely to persist.

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