Brazil's Spending Containment Package

BRASILIA (Reuters) – Brazil's Finance Minister Fernando Haddad announced uncertainty about a spending containment package this week, pending President Luiz Inacio Lula da Silva's approval.

The market is eagerly awaiting new fiscal measures due to local fiscal concerns and inflationary fears linked to U.S. President-elect Donald Trump’s proposals, which have weakened the currency and increased long-term interest rates in Brazil.

During a press conference in Brasilia, Haddad emphasized that the package aims to maintain expenditures in line with a fiscal framework implemented the previous year. This framework includes annual primary budget targets alongside a cap for spending growth at 2.5% above inflation.

Haddad noted, "(This means expenditures) following the same rule or something similar, but achieving the same objective."

Mandatory expenses such as pensions and certain social benefits have surged past the general cap, limiting the budget for other operational costs. Economists caution that this trend could jeopardize the new fiscal framework's sustainability, undermining efforts to control public debt.

Haddad described the fiscal impact of the package as significant and reaffirmed the government's commitment to the fiscal rules from last year, although he refrained from discussing specific figures.

After a meeting with Defense Minister Jose Mucio, he indicated that additional measures might be included in the package. Reports suggest the government may tighten pension rules for military personnel, currently allowing benefits for relatives of expelled service members.

Haddad's comments followed discussions with Lower House Speaker Arthur Lira, to whom he presented the "general outlines" of the upcoming measures.