Brazil’s 2027 Budget Projects an ‘Effective’ Surplus, Still Below the Official Target

Brazil's 2027 budget proposal, set to be presented to Congress on Monday, aims to deliver an effective primary surplus of R$18 to 20 billion (US$3.5 to 3.9 billion). This figure includes all expenses, even those normally discounted from the official fiscal target. While the effective surplus is positive, it still falls short of the official target, which stands at 0.5 percent of GDP, or R$73.2 billion (US$14.2 billion).

Planning Minister Bruno Moretti previewed the proposal on Sunday, emphasizing that the government will strive to achieve the center of the target range. The surplus is calculated through various measures, including spending freezes and excluding specific revenue streams. However, critics argue that the "effective" figure is more influential than the official one, as it relies on discounts and exceptions.

To bolster the budget, Congress approved new spending triggers and adjusted certain expenses. These changes are projected to lead to a nominal growth of 7 percent in mandatory spending in 2027, which is below the allowed 7.7 percent expansion under the fiscal framework. Additionally, the government will inject R$6 billion (US$1.2 billion) into the loss-making postal service, Correios, in an effort to rescue the struggling company.

Critics contend that the discounts and exceptions in Brazil's budgeting process play a significant role in achieving the effective surplus, rather than the official target. The Lula government has generally met fiscal targets by utilizing these discounts. Meanwhile, the proposal is politically significant as it marks the first budget covering the first year of the next president, Lula, who faces a tough election against his challenger, Senator Flávio Bolsonaro.