Brazil’s public debt has climbed more than 10 percentage points during Lula’s first three years, reaching 82% of GDP—a level that pushes borrowing costs higher. The surge stems from years of mandatory spending that leaves less than 8% of the federal budget adjustable, and Lula has alternately dismissed debt concerns as “nonsense” while promising that robust growth will solve the problem.
Interest rates sit at 13.75%, yet annual inflation remains at 4.6%, just above the central bank’s 1.5%‑4.5% tolerance. The Banco Central has delivered a fifth consecutive rate cut last month, yet markets now expect inflation to stay above the official 3% target until 2029, signaling that lower rates will only materialise if spending is trimmed.
Nearly 84 million Brazilians and 9.3 million businesses are behind on debt payments, according to credit bureau Serasa. Lula’s plan for a new debt‑relief round—offering discounts on distressed household loans and tax‑debt forgiveness for small firms—offers only temporary reprieve, analysts warn, as high interest rates continue to bite.
The most formidable obstacle is the Congress, now dominated by the Liberal Party and its allies after the 2023 elections. With Bolsonaro’s supporters controlling both chambers, Lula’s efforts to tighten fiscal rules and push a new value‑added tax—estimated at roughly 28%—are likely to be met with resistance, delaying revenue gains and exacerbating political friction.