Brazilian Government Pledges Fiscal Strengthening

SAO PAULO (Reuters) – Brazilian ministers on Wednesday pledged to strengthen the country's fiscal framework, addressing market concerns as they discussed a fiscal adjustment that may involve spending cuts.

Market participants have expressed doubts about Brazil's capacity to uphold its fiscal framework, given the rapid rise in mandatory expenses, which limit overall spending growth due to existing rules.

Finance Minister Fernando Haddad informed reporters that a constitutional amendment would be necessary for the government to fortify the fiscal framework, noting that negotiations with other cabinet members were progressing.

He highlighted an "important convergence" with President Luiz Inacio Lula da Silva's chief of staff on the measures but acknowledged a "writing challenge" as the leftist Lula government prepares them.

Haddad added that once a sustainable formula for the fiscal framework is established, concerns about public spending will diminish.

"Our job is making the best proposal possible in the direction of making spending fit" within the fiscal rules adopted last year, he stated, without providing specific details.

Haddad's comments came ahead of a meeting of the government's budget board later on Wednesday, which includes Chief of Staff Rui Costa, Planning Minister Simone Tebet, and Management Minister Esther Dweck, leading discussions on proposals for Congress.

"Anyone who bets against Brazil will lose. Lula will make the necessary adjustments to maintain the country's growth, ensure investments, and comply with the fiscal framework," Costa declared on X.

According to two government sources close to the discussions, the ministers are anticipated to debate fiscal adjustment initiatives in the meeting. Tebet mentioned that Lula has "an idea" of the fiscal measures needed but refrained from disclosing the proposal's size, stating the president has the final say and hasn't yet approved the presented options.