The tumultuous presidential election in Brazil comes to a mudslinging head on October 4, when Brazilians choose between the two leading candidates, incumbent President Luiz Inácio Lula da Silva and Flávio Bolsonaro, the son of former president Jair Bolsonaro, who is serving a prison sentence for his role in a coup attempt after the last election in 2022.
Brazil faces serious economic problems, from low growth to massive budget deficits, high interest rates, and weak household balance sheets. But if you listen to the candidates, you would never know Brazil has any problems at all. Neither has presented a clear sense of what they would do about the country's fiscal and monetary problems or how they intend to manage Brazil's economy.
Political campaigns are generally not known for economic sophistication. But calling an election with little to no discussion of economic issues is unusual for Brazil and any democracy, and it is dangerous. The lack of economic substance exacerbates Brazil's extreme political polarization and will likely contribute to a sense of illegitimacy that may compromise the economic agenda regardless of who wins.
A runoff, scheduled for October 25 if no candidate attains half of the valid votes, will likely take place under similar conditions. Brazil is not at risk of an imminent crisis, but its fiscal problems have become more acute over the past several years. Gross general government debt currently stands at 82.5 percent of GDP, an uncomfortably high level that requires adjustment measures, especially given Brazil's crisis-prone history. Debt sustainability analyses usually focus on the primary balance trajectory to measure the needed adjustment. Although Brazil currently has a primary deficit, it is small, hovering at just under 0.7 percent of GDP. The bigger concern is the nominal deficit, which includes interest payments on the country's debt and is now a whopping 9.3 percent of GDP. The interest bill alone stands at 8.7 percent of GDP.
How bad is Brazil's debt burden?
In early August, both candidates filed their respective government programs, running to dozens of pages. Neither discusses Brazil's fiscal and monetary situation, the country's debt burden, or measures to address these issues.
The omission is grave, as a back-of-the-envelope calculation shows the primary surplus needed to keep debt from rising in 2027. Using the 2027 assumptions for growth (1.4 percent), nominal interest rates (12 percent), and 2028 expected inflation (3.8 percent) from the Brazilian Central Bank's (BCB) weekly market survey (Focus), Brazil would need a primary surplus of 5.5 percent of GDP to stabilize the debt ratio at the current level of 82.5 percent.
Thus, from a primary deficit of some 0.7 percent through July 2026, Brazil would need a fiscal adjustment of 6.2 percent of GDP to avoid an increase in the debt burden. Obviously, such a sizeable adjustment is unattainable and undesirable in such a short period (one year). But these calculations show an urgent need to discuss the fiscal trajectory and remedial measures. While many economists have underscored the need for adjustment, the candidates themselves have not offered their views or presented clear options. With real interest rates near 8 percent and rising globally, and growth below 2 percent, fiscal and monetary imbalances need a credible medium-term plan. There is nothing on offer.
How bad is the Brazilian household debt problem?
Household balance sheets are also weak, in part because of the high level of interest rates in Brazil. The latest credit statistics (July) compiled by the Brazil Central Bank show household debt at 49.9 percent of disposable income and debt service obligations absorbing nearly one third of income, leaving little for savings and consumption. Additionally, 90-day arrears on household loans are at an all-time high, with over 80 percent of families in debt as of August 2026.
Not surprisingly, household consumption has grown at a feeble annual rate just below 1 percent, despite a 2.5 percent real minimum wage gain this year. To address the household debt problem, the Lula government introduced a phased debt renegotiation program ("Desenrola"), which the president promised to continue if reelected. Lula has also committed to "improving the supply of and responsibility for credit," without explaining how this would be achieved. Flávio Bolsonaro's program, by contrast, offers "debt counseling" through Caixa Econômica Federal—Brazil's public mortgage lender—and a rewards scheme for on-time payers. Neither Lula nor Flávio Bolsonaro have proposed anything that would lower the cost of credit itself. That would require addressing the macroeconomic fundamentals and getting such a plan through a polarized Congress.
Rampant and uncontrolled online betting has become part of the household debt story, and in the last week of the campaign it also became the clearest example of economic policy made without proper stocktaking or planning.
Lula's government program, filed in August, promised to "maintain the mechanisms for controlling excessive spending on online betting." But on September 25, nine days before the vote, Lula signed a provisional measure banning fixed-odds betting outright. Flávio Bolsonaro says online casinos should end, but sports betting can be controlled, though his program does not present how this would be done. The issue remains unresolved.
Neither presidential hopeful is addressing economic problems in their campaigns
With the approach of the first round of what may be the most contested election in Brazil's history, voters will head to the polls without any indication of what will happen to the country's debt, interest rates, fragile household balance sheets, and trade relations with China and the United States, to name only a few challenges.
In addition, massive uncertainty looms over how the Trump administration will treat Brazil's next government, depending on who wins. President Donald Trump has hosted Flavio Bolsonaro in the Oval Office and praised him without making an official endorsement. The population will learn what's ahead for the economy only after the vote, which is the reverse of what an election is for.
Data Disclosure
This publication does not include a replication package.
