The government is on track to be the most incompetent since the stability achieved in 1994

Brazil is on track to have its largest post-1994 stabilization period of government deficits, as shown in the figures below, where there has been an adjustment to take into account the period of Dilma Rousseff’s government; Whereas, the forecasts for 2025/2026 are taken from the Focus program (expectations survey compiled by the Central Bank).

The average nominal deficit is 9% of GDP in 4 years! Even with the stratospheric pandemic-induced deficits in 2020 that affected the last administration, we have never had a term with such a high average. Temer was the closest, but with the caveat that he was coming from a deficit that averaged 10% of GDP during the 2015/16 period.

Lula inherited a nominal deficit of 4.6% of GDP in 2022, and in 2026 he will increase it by about 90%. It’s a feat.

The nominal financing needs (deficit) of the public sector for each government period, as a percentage of GDP, will be:

• 1995/98 – 6.0
• 1999/02 — 4.0
• 2003/06 – 3.8
• 2007/10 – 2.6
• 2011/16 – 5.5
• 2017/18 — 7.4
• 2019/22 — 7.0
• 2023/26 — 8.6

In the 2022 election campaign, Lula always refused to say what he would do financially, using the argument that he had already shown responsibility during his eight years in government, and that this would be enough to qualify him for the trust of the population and markets.

What he didn’t say was that the one who had done the hard work before was the Federal Housing Commission government, which went from a zero-interest return in 1998 to a surplus of 3.2% of GDP in 2002, exactly the same as in 2003.

When the market realized that year that the idea of ​​Lula changing FHC and Malan policy by 180 degrees was a “waterfall”, it was just “running into the embrace”, without much effort.

Nothing different from the picture we will see in 2023. Whether it was due to the populist measures adopted by Bolsonaro at the end of his government, with tax cuts in the second half of the year to try to win the elections, with effects in the following year, or through the promises of more spending made by Lula himself in the election campaign, it was known that in 2023 revenues would fall and spending would increase, exacerbating the fiscal problem, which is exactly what happened.

The result was that while in 2003 there was a primary surplus of 3.2% of GDP, in 2023 there is a deficit, in this sense, of 2.3% of GDP. Even if the extraordinary spending on court orders that year were taken out of the account, it would constitute a deficit of 1.4% of GDP, nearly 5% of GDP worse than the first-year deficit of his first government.

Bolsonaro was an incompetent governor – at best – but attributing Lula’s fiscal numbers in 2025 to his predecessor is nonsense. Why are we experiencing a serious financial crisis? Because in the 2023/24 biennium, federal primary spending increased in real terms by a staggering 12% cumulative rate, and the government is refusing to do what everyone knows it needs to do. Let’s be clear: the person responsible for the current level of the public deficit is the President of the Republic.

When Ulysses Guimarães complained to his interlocutors about the quality of the legislature, he said with cold precision: “Are you complaining? The next one will be worse.” Does the reader complain about the financial path of Lula’s government 3? Wait Lola 4.