Brazil to Target Higher Primary Surplus Next Year, Treasury Intervenes in Bond Market After Selloff

Brazil's Finance Minister Dario Durigan said Monday the government will pursue a higher effective primary surplus next year, without specifying a figure, and will send legislation to Congress this year requiring policymakers to formally target the midpoint of the primary balance goal. The announcement follows a sweeping selloff across Brazilian markets driven by fiscal concerns over the reelection of leftist President Luiz Inacio Lula da Silva. The Treasury canceled scheduled debt auctions and conducted extraordinary buyback operations Monday to "ensure rationality" in trading after a sharp jump in long-term interest rate futures triggered by the election. Brazil's 2026 fiscal target calls for a primary surplus, excluding interest payments, of 0.5% of GDP, with a tolerance band of 0.25 percentage point on either side. In August, the government projected an effective primary surplus of 0.1% of GDP for next year—which would be Brazil's first fiscal surplus since 2022. Most investors and economists view that pace of consolidation as too slow given rapid growth in mandatory spending. Gross public debt has risen more than 10 percentage points during Lula's current term to 82.9% of GDP.