Brazil's government can no longer meet its own fiscal targets starting in 2028, according to the eighth edition of the Fiscal Projections Report published by the National Treasury at the end of June 2026. The report shows that even with maximum spending freezes, the country will miss its surplus goals by widening margins each year. It's a stark admission from the government's own finance ministry that the current fiscal framework, designed just three years ago, is headed for collapse.
The numbers paint a grim picture. Brasília has set rising surplus targets of 0.5% of GDP in 2027, climbing to 1% in 2028, 1.25% in 2029, and 1.5% in 2030. But the Treasury's projections show the country will miss those marks badly, even after freezing 66.6 billion reais ($13 billion) in 2028 and 68.4 billion reais ($13.37 billion) in 2029. The shortfall starts at 10 billion reais in 2028 ($1.95 billion), explodes to 80.6 billion reais in 2029 ($15.75 billion), and reaches 136.4 billion reais in 2030 ($26.65 billion). In the near term, the government expects to stay within tolerance bands with a deficit of 0.4% of GDP in 2026 and just 0.1% in 2027, but the picture changes dramatically after that. Meanwhile, Brazil's gross general government debt is already climbing from 83.5% this year to a projected 87.9% by 2029, and the country's 10-year bond yields sit above 14% while the Selic benchmark rate stands at 14.25%, among the steepest real rates in the world.
The report reveals that mandatory spending untouched by the fiscal cap—pensions, continuous benefits, unemployment insurance, and constitutional floors for health and education—grows at 2.7% a year in real terms, forcing discretionary spending to contract by 3.2% annually. Marcos Mendes of Insper, cited in the analysis, observes that the projections assume favorable conditions including growth above 2.5%, inflation converging to target, and real interest rates falling to a third of their current 9% levels. Even under that rosy scenario, the gap persists. In May, the IMF put it plainly: meaningful reforms are needed to place debt on a firm downward path, and spending rigidities must be addressed.
The problem stems from the fiscal rule established in 2023 by then-finance minister Fernando Haddad, which caps real spending growth at 2.5% but only applies to the discretionary portion of the budget. The rule left structural fiscal spending completely untouched, making it what the report calls "discipline in name only." It reassured markets without disturbing President Lula's political coalition by shielding the transfer payments his support depends on. But the design also means the period of achievable targets ends in 2028, exactly when the current presidential term expires—scheduling fiscal consolidation for a mandate no one in the current cabinet is guaranteed to serve. The report compares Brazil's path to post-war Europe, where generous indexation drove governments into repeated rounds of brutal austerity in the 1970s and 2010s, with Italy taking nearly a decade and a currency crisis to dismantle its scala mobile wage indexation in the 1980s. The Treasury's warning is honest precisely because it comes from officials with no political seat to defend, and it lays bare that the fiscal rule was never a true constraint on spending but merely a deferral of the decision over where that constraint should really lie. The can that was kicked down the road has run out of pavement.