Right-wing presidential frontrunner Flavio Bolsonaro’s plan to cut up to BRL200 billion ($40 billion) in public spending has drawn investor attention ahead of Brazil’s October 25 runoff, though analysts and ratings agency Moody’s caution the package may fall short of stabilizing the country’s rising debt burden.
The measure would implement nine to ten spending cuts totaling roughly 1.5% of GDP. Market reaction was swift, with interest rates dropping more than one percentage point since Bolsonaro led the first round on October 4.
The proposed cuts target the public sector broadly, initially avoiding pension reform or reductions to social benefits. Instead, they focus on administrative reform, reducing the number of ministries and appointed posts, reviewing civil service pay scales, and preventing fraud. Economic adviser Luiz Felipe Trevisan reportedly discussed these measures during a meeting that circulated among market WhatsApp groups.
Gross debt currently stands at 82.9% of GDP, climbing 4.2 percentage points between January and August alone, Valor reported.
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Bolsonaro’s campaign has not committed to structural fiscal changes such as decoupling social security benefits from the minimum wage or pursuing new pension reform. A promised sale of over BRL1 trillion in federal assets could reduce gross debt to 75% of GDP, but economists doubt it can be executed quickly enough to make a meaningful impact.
Moody’s, which rates Brazil Ba1 with a stable outlook, noted that the next government will inherit a significantly weaker fiscal position. The agency estimates that stabilizing debt would require a primary surplus of 2-3% of GDP, compared with the current primary deficit of about 0.5%. Moody’s also stated that without legislative support from Congress, the next administration would have limited capacity to achieve major spending reductions.
A second term for incumbent left-wing President Luiz Inacio Lula da Silva would likely maintain the current fiscal framework and narrow the deficit only gradually, according to the agency. The government ran a structural deficit of 1.4% of GDP in June, as reported by the Independent Fiscal Institution (IFI), highlighting the depth of Brazil’s fiscal challenges regardless of the election outcome.
