IFI Report Warns of Growing Structural Deficit and Fiscal Risks in Brazil

The Independent Fiscal Institution (IFI) of the Federal Senate reported on Thursday that Brazil's structural primary deficit doubled from 0.7% of GDP in 2025 to 1.4% of GDP in the four quarters ending in June 2026. The report indicates that expenses are growing faster than revenues, with primary expenditures rising 6.3% in real terms compared to a 6% real increase in net primary revenue during the first seven months of 2026. While revenue was partially boosted by higher oil prices due to conflicts in the Middle East, the IFI warns that the country requires a deeper and more sustainable structural adjustment.

According to the report, the government is expected to formally meet its fiscal target set by the Budget Guidelines Law (LDO) only through the use of legal deductions. These deductions are estimated at R$ 62.8 billion by the government and R$ 69.8 billion by the IFI. Without these adjustments and the use of a tolerance interval, the target surplus of 0.25% of GDP would not be reached. The IFI estimates that a surplus of 2.1% of GDP would be necessary to stabilize the Gross Government Debt, which is projected to end the year at 82.5% of GDP.

Center and center-left framing differs regarding the primary drivers of this fiscal deterioration. Center-leaning coverage emphasizes the broader structural imbalance and the risk posed by a R$ 105.5 billion stockpile of unpaid obligations (restos a pagar), which is six times higher than official expenditure blocks. Center-left framing focuses on the acceleration of parliamentary amendment payments in the first half of 2026, noting that 65% of these funds were paid by June. This center-left perspective describes this shift as an expansionary fiscal policy typical of election years, contrasting it with the contractionary policy of 2025.

Additional macroeconomic projections for 2026 include a revised GDP growth of 2%, projected inflation of 5%, and an expected Selic rate of 14% by the end of the year. The IFI specifically noted that the debt from state bench and commission amendments already exceeds the available payment limit for 2026, creating a critical cash restriction.