Brazil’s Haddad says measures for fiscal rules sustainability to be discussed with Lula

By Marcela Ayres

WASHINGTON (Reuters) – Brazil’s Finance Minister Fernando Haddad said on Wednesday that a “remedy” to ensure the sustainability of the country’s fiscal framework will be discussed with President Luiz Inacio Lula da Silva upon Haddad’s return from Washington.

Speaking to reporters in Washington, where he is attending IMF/World Bank and G20 meetings, Haddad said he is more concerned about the international scenario, amid the volatility caused by the U.S. elections affecting markets, than the domestic situation. He emphasized the positive momentum of Brazil’s economy.

Asked about the high level of future interest rates, Haddad recalled that last year there was also a period of stress reflected in the yield curve, which later eased.

“These things tend to go like this. There’s a cloud of uncertainty, you explain yourself, make decisions, move forward with the agenda, and that cloud dissipates, bringing things back to normal,” he said.

“We have a challenge to meet, and I’m quite calm about it. I’m more concerned about the international outlook than the domestic one at this moment.”

Haddad said his ministry is working to strengthen the fiscal framework adopted last year by Lula’s administration, which sets a maximum cap for spending growth tied to primary budget outcome targets.

The market has raised concerns about the sustainability of the framework due to the rapid growth of mandatory spending, such as pensions and certain social programs, which limits space for other expenditures within the cap, casting doubt on the framework’s long-term viability.

Haddad said there is an overreaction in the assessment that the government is neglecting public finances.

“All early-year projections for the primary deficit were much worse than what is actually going to happen, much worse, and this is not being recognized,” he said, stressing that the government will deliver a deficit within the official target band this year.

The official goal is to eliminate the primary shortfall, with a tolerance margin of 0.25% of GDP, meaning the government could run a primary deficit of up to 29 billion reais.