Analysis-Brazil’s Lula plays it safe with first post-election fiscal plan

Brazilian President Luiz Inacio Lula da Silva's first fiscal plan since his reelection last month is seen as cautious, potentially insufficient for financial markets and some within his left-wing Workers' Party. Aimed at meeting fiscal targets, the package includes measures like tax break restrictions and spending restraint tools, projected to save up to 60 billion reais ($10.75 billion) in 2027, equivalent to 0.5% of the country's GDP.

However, market analysts and some economists argue that this plan falls short in addressing medium-term fiscal concerns. Brazil's currency, the real, is at its weakest against the US dollar since mid-2025. The government's focus remains on achieving a modest primary surplus in 2027 after three years of small deficits, though investors remain wary of the country's overall budget deficit, which stands at nearly 10% of GDP.

Some members of Lula's party suggest that interest rates should be capped at lower levels, but the plan to tackle the public finance issue remains unclear.