Between January and September 2023, the Brazilian federal government reported an inflation-adjusted primary deficit of BRL 92.6 billion (USD 18.4 billion). It is the most significant fiscal shortfall since the height of the pandemic crisis.
In contrast, the same period in 2022 yielded an inflation-adjusted surplus of BRL 37.9 billion. Brazil posted a primary surplus last year for the first time since 2013, largely thanks to one-off events, punishing budget cuts, and spending chaos.
Current fiscal projections for 2023 anticipate a deficit of BRL 145 billion. This forecast is influenced by several policy initiatives under President Luiz Inácio Lula da Silva’s administration, including an elevated income tax threshold, an annual minimum wage increase that outpaces inflation, and salary increments for public sector employees.
The government also promises to re-establish mandatory minimum budget allocations for healthcare and education (which it has been authorized to push back until next year).
The primary deficit goal for the year sits at 0.25 percent, though the federal government has submitted a 2024 budget proposal to Congress aiming at a zero deficit. But Lula caused something of a stir on Friday, expressing skepticism about the chances of reaching this target. “I have no intention of slashing investment expenditures. A deficit of 0.5 percent or 0.25 percent is inconsequential. We will make decisions that are in Brazil’s best interest,” he stated.
The stock market reacted poorly to the president’s words, with São Paulo’s benchmark index dropping 1.29 percent on Friday and practically wiping out gains made earlier in the week.
Markets were already skeptical about the target, largely due to Lula’s own unwillingness to make budget cuts. The new fiscal framework approved by Congress permits annual increases in spending ranging from 0.6 percent to 2.5 percent above inflation.
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