Commentary: Brazil’s 2026 Election Heads Toward A Fiscal Squeeze, Whoever Wins

Key Points

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• Brazil closed 2025 with a larger underlying deficit, despite record revenues and accounting exclusions.

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• Debt is rising fast under high interest costs, limiting room for new promises in 2026.

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• The next president inherits tighter choices because mandatory spending keeps growing automatically.

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\n(Commentary) Brazil’s fiscal debate is drifting toward the 2026 election with a problem most campaigns avoid: the bill is already large, and it is still growing.
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\nEven with a legal cap that aims to limit real spending growth, mandatory expenses kept pushing totals higher in 2025. Primary revenues rose 3.2% above inflation, but total spending rose 3.4%.
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\nSocial benefits indexed to the minimum wage lifted the baseline. Pension benefits increased 4.1% above inflation. The BPC benefit program reached R$ 127.0 billion ($23.5 billion) and rose 9.1% in real terms.
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\nFederal transfers to Fundeb jumped 19.7%. As rigid costs rose, investment took the hit. Public investment fell 7% from the prior year.
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\nThe government also relied on “empoçamento,” or budgeted funds left unspent, to help meet targets. That cushion averaged around R$ 15.0 billion ($2.8 billion) in recent years. In 2025 it fell to R$ 8.0 billion ($1.5 billion).
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\nFrom January 2023 through December 2025, the central government accumulated a primary deficit of R$ 356.4 billion ($66.0 billion). Over the same stretch, interest costs surged.
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Brazil’s Fiscal Pressure Mounts Despite Official Targets

\nThe annual interest bill likely exceeded R$ 1.0 trillion ($185.0 billion) by late 2025. The nominal deficit reached 8.13% of GDP in November, placing Brazil among the world’s weaker readings.
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\nOfficially, the 2025 target was met, with a deficit near 0.1% of GDP. But once excluded items are counted, the primary deficit widened.
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\nIt rose from R$ 42.9 billion ($7.9 billion) in 2024 to R$ 61.7 billion ($11.4 billion) in 2025. About R$ 48.7 billion ($9.0 billion) sat outside the headline count.
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\nMeanwhile, exceptions are expanding. The 2026 budget widened off-limit spending after constitutional changes to precatórios. Analysts warn this weakens credibility and makes true spending harder to track. Debt ratios are also worsening.
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\nGross debt was about 71.7% of GDP when Lula took office, near 79.3% in 2025, and could reach 84.5% in 2026. Bolsonaro handed over a rare “blue” year in 2022, aided by temporary boosts and strict restraint.
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\nLula’s team chose a looser path, betting growth and revenue would carry it. The arithmetic now suggests the next president will face tougher trade-offs, regardless of ideology.

Related coverage: Brazil’s Morning Call | Brazil’s Job Creation Hits Its Weakest Year Since 2020 This is part of The Rio Times’ daily coverage of Brazil affairs and Latin American financial news.

For the full picture, see our Brazil Elections 2026: Complete Guide.