The federal government’s public sector financing needs, measured between revenues and total public spending, jumped from 4.5% of GDP to 5.7% at the end of 2024. As of September this year, they stood at 8.2% of GDP.
Unlike the fiscal framework, which excludes interest expenditures to roll over the federal debt and the billion-dollar exceptions for new spending that Lula’s government removed from its fiscal rules, the FSP (or nominal score) clearly reflects the size of the government’s deficit.
Some economists and market participants have stopped paying attention to the government’s figures and forecasts related to the framework because they do not reflect the true state of public accounts.
After all, negative outcomes end up being incorporated into public debt, which is the main indicator of a country’s ability to repay its debts when its value is compared to its gross domestic product. Since the start of 2023, Brazil’s total debt has risen by roughly six points, to R$10 trillion – and estimates suggest it could grow by roughly nine points during Lula 3.
The Ministry of Finance claims that the jump in spending observed in recent years was influenced much more by net interest expenses than by the primary outcome, which is the central objective of the framework rules and which does not reflect the cost of rolling over debt.
He also says the trajectory of the NFSP should improve in the medium term, as the central bank begins to reduce the Selic rate, currently by 15% per year. “Therefore, the dynamics of the new framework will naturally lead to better initial results over time, with expenditures growing less than revenues,” the ministry says.
In 2023 and 2024, the federal government faced a primary deficit (measured by the framework) of R$228.4 billion and R$11 billion, respectively. Last year, for example, R$32 billion was excluded from the fiscal base, which was intended to mitigate the effects of floods in Rio Grande do Sul. The expenditures did not enter the framework account, but rather increased the public debt.
Economist Alexandre Manuel, former Secretary of the Ministries of Finance and Economy (2018-2020) and Partner at Global Intelligence and Analytics, believes that there are a series of indicators that reveal the “deterioration” of public accounts. This comes despite Lula’s government increasing federal revenues, the net revenues of which could reach nearly 19% of GDP in 2026.
“The government chose not to change structural expenditures, but, on the contrary, reversed the minimum wage policies (they began to give real increases, with a significant impact on the National Institute of Social Security), health and education to Dilma Rousseff-era standards, as well as removing expenditures from the budget and expanding credit operations with credit subsidies. The result was the erosion of the fiscal framework.”
Under Lula 3, expenditures rose from 18% of GDP at the end of 2022 to 18.8% in 2024, and will remain at this level in 2025. Manuel claims that there is a series of expenditures, carried out through public funds and banks, which are excluded from the framework, but which ultimately lead to an increase in public debt.
In 2022 (before Lula’s inauguration), R$66 billion came out of the union budget, at 2025 prices, to serve as “financing” for loans directed by public banks. In 2025, this value has doubled in real terms, reaching R$124 billion, according to calculations by economist Marcos Mendes, of Insper and columnist for Insper magazine. Bound.
The results of state-owned companies also contribute to increasing the deficit. Between 2022 and 2024, the net profits of these companies fell by less than half, from R$275 billion to R$116 billion. For example, Curios expects losses of R$10 billion this year.
Marcus Pestana, executive director of the Senate’s Independent Fiscal Foundation, says many professionals who monitor public accounts fail to take the fiscal framework into account in their assessments.
“The framework has two functions: to control spending so that debt does not increase, and to stabilize expectations, allowing interest rates to fall,” Pestana says. “In our vicious circle, what we see is increased spending, worsening fiscal situation, and limited room to cut interest rates.”
In this scenario, interest rates are pressured by the government’s need to roll over ever-increasing debt, which makes investors demand higher interest rates, and by increased spending, which stimulates activity and keeps the central bank on the defensive to lower the Selec rate – its mission being to achieve inflation at a target of 3% per annum. At 12 months, IPCA-15 accumulated 4.5%.
“It is better to have a framework than not to have one, but it has become irrelevant,” says Pestana. “It is a matter of mathematics: expenses are expenses. There is no sense in excluding expenses to comply with the rule.”
Just like the Treasury, a large part of the so-called nominal deficit (or NFSP, which includes interest) is the cost of rolling over debt, which tends to fall in the medium term, says Ricardo Somma, of the UFRJ Institute of Economics.
Soma states that by spending more, the government stimulates demand and increases wages, which will ultimately increase GDP, which is the denominator in calculating the debt-to-GDP ratio. “Too strong cuts in expenditures would stagnate the economy and increase debt,” he says. “The alternative is to make adjustments on the revenue side (tax increases) to contain the debt.”
“The debt trajectory scenario requires attention and for this reason the ongoing fiscal effort must continue,” the Treasury says. The Ministry claims that it is seeking to achieve better results, which has not happened so far.
The Ministry confirms that the preliminary result of the goals announced by the government for the year 2026 shows a commitment to increasing results, from 0% of GDP in 2025 to 1.25% in 2029, and remaining at this level. “As a result, total debt is expected to reach a peak of 84.2% of GDP in 2028, and begin a reduction path to reach 81.6% in 2035.”