Lula: No Need to Eliminate Brazil’s Fiscal Deficit Next Year, According to Reuters

By Lisandra Paraguassu

BRASILIA – Brazilian President Luiz Inacio Lula da Silva stated on Friday that his administration does not intend to eliminate the fiscal deficit next year, emphasizing the critical need for funding priority projects and infrastructure investments.

During a press conference, Lula asserted that an immediate need to address the budget deficit is unnecessary, criticizing investors for being "too greedy" in their demands for unattainable targets.

"It would be challenging to achieve a zero deficit, especially since I do not want to cut funding for construction projects," he remarked to the media. "I refuse to establish a fiscal target that compels me to begin the year by slashing billions from vital projects for this country."

He further noted, "If Brazil has a deficit of 0.5% or 0.25% … that’s nearly nothing. Therefore, we will make the right decisions for the benefit of Brazil," he added in a briefing with journalists at the presidential palace.

His statements led to a negative response in local markets, causing the Brazilian real to give up earlier gains against the U.S. dollar, while the benchmark stock index extended its losses, declining by 1% during the afternoon trading session.

Medium-term interest rate futures increased, with the January 2026 contract rising to 10.66%, up from 10.578% earlier.

According to Treasury Secretary Rogerio Ceron, Brazil’s public accounts are anticipated to show a greater shortfall than initially expected by the end of this year, indicating further challenges ahead in achieving balance by 2024.

Delays and disappointments in implementing revenue-increasing measures have complicated the government’s ability to reconcile its budget and eliminate the deficit as outlined in a new fiscal framework.

The proposed budget rules have provided some reassurance to investors regarding fears of excessive public spending; however, weak outcomes from one-time revenue initiatives, declining tax revenues, and increasing deficit targets for 2023 suggest that the government still has significant work ahead.

"The market is frequently too demanding, expecting targets that they know are unrealistic," said Lula.

He also acknowledged that the coming year will be challenging due to the slowdown in China’s economy and rising interest rates in the United States, urging the need to find solutions.