SAO PAULO, Nov 10 (Reuters) – Brazil will unveil in the next few days measures to achieve a fiscal adjustment equivalent to 0.5% of gross domestic product in 2027, a government source said on Tuesday.
The step comes after Brazilian financial markets sold off on the back of President Luiz Inacio Lula da Silva’s reelection late in October, as investors questioned the prospects for a fiscal adjustment sufficient to stabilize public debt.
Among the measures in the new fiscal plan is the exclusion of extraordinary revenue from the basis for calculating the constitutional spending floors for health and education even when there is a surplus, the source said.
Another pillar of the fiscal adjustment, which would amount to between 70 billion reais and 80 billion reais ($12.5 billion to $14.3 billion) next year, could be a new cut to tax benefits, according to the source.
A bill with the measures is set to be presented by a government-backed lawmaker, rather than directly by the government, the source added. The finance ministry did not immediately respond to a request for comment.
Local news outlet G1 first reported the government’s plan for a fiscal adjustment bill.
In a televised address to Brazilians on Sunday, Lula reaffirmed his commitment to fiscal responsibility and said he wanted to help bring down high interest rates.
The central bank paused an easing cycle last week, keeping the benchmark interest rate Selic at 13.75% as it grappled with a worsening inflation outlook that some analysts say has been boosted by market fears over a declining fiscal policy scenario.
Brazil’s real has weakened, long-term interest rates have risen and the benchmark Bovespa stock index has slumped after Lula’s election victory on October 25, when he defeated right-wing Senator Flavio Bolsonaro in a surprise runoff turnaround.
Gross public debt has risen more than 10 percentage points during Lula’s current term to reach 82.9% of GDP, amplifying concerns that campaign pledges would fuel additional government spending.
($1=5.5926 reais)
(Reporting by Bernardo Caram in Brasilia; Writing by Andre Romani in Sao Paulo; Editing by Chris Reese)
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