🇧🇷 A Trillion Dollar Budget
Lula faces tough choices as Brazil's $1T budget, with 10% of GDP in deficit, eyes 80% debt by 2026.
With investors skeptical, Lula faces tough choices on fiscal discipline.
August 29, 2024
With investors skeptical, Lula faces tough choices on fiscal discipline.
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Yesterday, Brazilian Vice President Geraldo Alckmin posted a chart on Instagram showing the performance of Brazil’s primary stock market, Ibovespa, which has hit a historic high of 137.3K points. The post raised some eyebrows—and no, not just because he posted a non-Latinometrics chart.
Now, neither the Bolsa’s historic record nor the real’s underperformance can be laid merely at the feet of Alckmin or his rival-turned-boss, President Luiz Inácio Lula da Silva.
But there has been some investor skepticism this year. A big part of that is due to Brazil’s fiscal deficit, which hovers around 10% of gross domestic product (GDP).
Official figures published by the country’s transparency portal show a total spending budget of about $1T or a little less than half of the country’s 2024 GDP.
Of this, the largest chunk—a little over $300B—goes towards refinancing domestic debt. Brazil’s debt stands at just about 75% of GDP and is not being helped by the present deficit; Fitch Ratings, for one, expects debt to increase this year and even exceed 80% of GDP by 2026. Notably, however, Brazil is unlike some of its neighbors in that it has not restructured its debt for 20+ years, helping its credit profile.
The veteran leftist leader has long defended social programs, which have powered the success of his Workers’ Party (PT) since the early 2000s. Lula’s first two terms famously saw over 40M Brazilians rise out of poverty on the backs of a commodity boom and social services like Bolsa Família, and overall, his administrations (and their rivals’) have presided over a slow creep of rising social spending.
Political leaders often hesitate to cut spending, which hurts their popularity. Just look to Lula’s predecessor, the conservative Jair Bolsonaro, who went against neoliberal doctrine and boosted social benefits in the run-up to Brazil’s last election in an effort to stay in power.
But Lula, like presidents before and after him, cannot allow Brazil’s fiscal deficit to spiral out of control. His country borders two different economic messes, Venezuela to the north and Argentina to the southwest, and he’s all too familiar with what happens when spending is not kept reasonable.