Brazil's Next President Must Open With a Political Pact to Avert Fiscal Crisis

The Fiscal Inheritance Brazil's Next President Must Confront

The next Brazilian president will inherit a public-accounts position that one specialist described as 'at the limit': gross debt of 81.9% of GDP, or R$10.8 trillion, the highest level since April 2021. In interviews with O Globo, economists from across the policy spectrum said the incoming government's first task must be to restore credibility by negotiating a political pact with the newly elected Congress around one central idea — cutting spending.

The article's central warning is that Brazil has exhausted its old model of adjusting public finances from the revenue side. Instead, the mounting side effects of the fiscal squeeze are already visible: elevated interest rates, persistent inflation, a weaker real, paralyzed investment, a record number of judicial recoveries in agribusiness and rising corporate defaults. Economists argue these concrete pressures could force deputies and senators to accept reforms that have long been politically costly.

On the table are a new pension reform, unlinking health and education spending from revenue, an administrative reform that reaches the judiciary and legislature, confronting supersalaries, selling state-owned enterprises and eliminating subsidies and tax expenditures. The one measure that does not require Congress — changing the decree that sets real increases for the minimum wage — is also cited as an early, concrete step.

What the Economists Prescribe: Spending Restraint, PECs and Shared Sacrifice

Marcos Lisboa: The Fiscal Problem Has Become an Institutional Problem

Former economic policy secretary Marcos Lisboa argues that Brazil no longer has only a budget problem; it has an institutional self-restraint problem. He points to two decades in which the judiciary has reinterpreted laws to expand benefits, at a pace of roughly three million social-security decisions a year, and to the legislature's increasing appropriation of the public budget through parliamentary amendments. In his diagnosis, these dynamics have produced a situation that has already passed any indicator of reasonableness.

That framing matters because it shifts the adjustment debate from numbers to governance: without a political negotiation that restores self-imposed limits across the executive, legislative and judicial branches, any spending cut can be re-expanded later through rulings or amendments.

Elena Landau: Credibility Requires a Package, Not a Gesture

Former BNDES director Elena Landau argues that Brazil tends to respond only when it reaches a limit, and that the new government will need a credible speech plus concrete measures to reanchor market expectations. She singles out the minimum-wage link as a key obstacle: while the floor can rise in real terms, linking that real increase to pensions and other benefits through the current fiscal framework turns labor policy into social-assistance spending and strangles discretionary outlays. Changing the fiscal framework is, in her words, an obvious measure.

João Pedro Leme and the Structural Agenda That Needs Congress

Tendências public-finance specialist João Pedro Leme notes that the government's recent campaign of tightening registrations and reviewing spending improves the quality of expenditure but does not produce the kind of fiscal shock needed. The durable adjustment, he argues, requires a complete package: an administrative reform covering the structures and careers of the judiciary and legislature, a fresh pension reform for a benefit bill that already exceeds R$1 trillion a year, and a confrontation with supersalaries.

Marcos Mendes and Luiz Fernando Figueiredo: No Silver Bullet, and a PEC in the First Weeks

Insper researcher Marcos Mendes cautions that Brazil's budget is so rigid — dominated by mandatory spending — that there is no single measure capable of reaching the 1% of GDP threshold where adjustment starts to matter. He estimates that a broad set of actions sustained over at least a decade could yield 3% of GDP, including slower growth in personnel spending, privatization, and the elimination of subsidies and tax benefits. Former central bank director Luiz Fernando Figueiredo adds that the new government should send a constitutional amendment, or PEC, as soon as it takes office, so the adjustment binds from the very start of the mandate.

First Tests for the New Government and the Signals Markets Will Watch

The article's actionable point is that the first weeks of the next mandate will reveal whether Brazil is moving toward a durable fiscal adjustment. Three early signals are tied directly to the proposals discussed by the economists:

• Watch for a spending-focused PEC in the first weeks. Former central bank director Luiz Fernando Figueiredo says a constitutional amendment should be sent immediately after the election so it binds from the start. Breadth and speed here are the clearest tests of congressional willingness to share the adjustment.
• Track whether the minimum-wage decree is revised. The real-gain rule for the minimum wage — set by decree rather than law — is one of the few measures that can be changed without Congress. Elena Landau argues this is an obvious early move to stop automatic increases from transmitting into pensions and benefits.
• Watch the institutional cost agenda. Marcos Mendes and Marcos Lisboa say the adjustment's credibility depends on confronting judicial benefit expansions, parliamentary amendments and supersalaries. If these remain untouched, markets are unlikely to treat a narrow package as credible.
• Consider the medium-term interest-rate and currency implications. The article links the fiscal crisis to high interest rates, a weaker real and depressed investment; a credible pact would lower the risk premium embedded in Brazilian assets, while inaction would keep pressure on the Selic and the exchange rate.