Opinion

The risks of Brazil ignoring its public spending cap

The Brazilian government is hamstrung by constitutional spending rules, but disobeying the cap could cause an even bigger trust crisis

The risks of Brazil ignoring its public spending cap
Photo: André Nery/Shutterstock

The year 2020 was one of great expectations, not only for the Brazilian economy — but for the global financial landscape. Macroeconomic data corroborated growth expectations, GDP forecasts were promising, retail results enjoyed an upward trend, and inflation was under control. However, Brazil inherited an eye-watering debt-to-GDP ratio, which only got worse during the Covid-19 pandemic. The national debt-to-GDP ratio — already high at 75 percent — became desperate, with the expectation of hitting 100 percent.

Besides crashing into the Brazilian economy like a wrecking ball, the pandemic certainly created a feeling of mistrust among investors with regard...

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