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Elsewhere in the bond markets, Brazil’s debt is dropping in value after president Luiz Inácio Lula da Silva won a dramatic victory over his far-right opponent, Flávio Bolsonaro, to claim a historic fourth term in power.
Bolsonaro, son of the former president, had been expected to oust Lula, but instead the left-wing incumbent triumphed, with 51.79% of the vote to his 45-year-old rival’s 48.21%.
Lula’s campaign did pledge fiscal consolidation, but at a slower pace than his rival and with the explicit condition that spending cuts should not fall on lower-income Brazilians. The government’s own projections show the primary balance improving only gradually, to a surplus of 1.3% of GDP by 2030. His running mate, Geraldo Alckmin, pointed to campaign funding and excessive public-sector salaries as areas for savings. Neither comes close to the scale of the problem.
Brazil has little room left for this kind of politics. Gross public debt has climbed to around 83% of GDP, up more than 10 percentage points during this administration, and a deficit close to 10% of GDP is now almost entirely interest. Brazil pays one of the highest real interest rates in the world on a debt that keeps growing, which is the definition of an unsustainable path, and the bill falls on companies and households as much as on the Treasury.
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