National Treasury sees debt peaking by 2028

The updated projections were released in the Treasury’s Fiscal Projections Report published yesterday. In its previous forecast, from December, the Treasury had projected the debt-to-GDP ratio would peak earlier, in 2027, at 81.8%, and start declining in 2028 to 81.6%.

The latest report also projects a 2.5 percentage point increase in the debt-to-GDP ratio this year compared to the 2024 figure, which closed at 76.5%. For 2025, the Treasury expects the debt ratio to reach 79%.

According to the Treasury, the worsening debt path is “mainly explained by the level of nominal interest rates, which continue to exert upward pressure on debt in the coming years.” However, projected GDP growth is expected to partially offset the increase.

“The projections consider scenarios involving the Central Bank’s liquidity management operations, particularly factors affecting the monetary base, such as cash currency operations, reserve requirements (mandatory or voluntary), and liquidity lines,” the report noted.

The report also states that, under the current fiscal framework, a primary surplus of 2.3% of GDP per year starting in 2030 would be necessary to bring the debt-to-GDP ratio back to 76.5% by 2035.

While the Treasury’s outlook has worsened, market forecasts are even more pessimistic. According to the latest data from the Central Bank’s Market Expectations System, the DBGG is expected to reach 80.1% of GDP this year and 94% by 2034, with no stabilization in sight.

Tiago Sbardelotto, an economist at XP Investimentos, emphasized that the Treasury’s projections represent a “baseline scenario,” meaning they assume primary surplus targets are met, along with substantial revenue growth throughout the period.

“This shows how even a slight deterioration in the macroeconomic outlook, like marginally higher interest rates, could push the debt onto a sharply rising trajectory and delay any stabilization,” Mr. Sbardelotto said.

In the Treasury’s initial scenario, which strictly considers fiscal forecasts based on current legislation, the debt-to-GDP ratio would reach nearly 90% by 2035, without stabilizing.

“What the report shows is that even under optimistic assumptions, reversing the rising debt trend will be difficult in the short term within the new fiscal framework,” Mr. Sbardelotto added. “To change this trajectory, we would need a macroeconomic and fiscal shock, requiring serious reforms to control spending,” he said.

The Treasury projects that the central government’s primary result will remain in surplus at 1.25% of GDP through 2035.

This scenario assumes favorable growth in primary revenues driven by measures to increase tax collection, along with a gradual decline in total spending as a percentage of GDP. It also assumes the government will meet primary surplus targets set in the 2026 Budget Guidelines Bill (PLDO), including a zero deficit in 2025, followed by surpluses of 0.25% of GDP in 2026, 0.5% in 2027, 1.0% in 2028, and 1.25% in 2029.

On the revenue side, the report forecasts net primary revenue to rise to 19.1% of GDP in 2029 and 2030 before declining from 2032 onwards, reaching 17.5% in 2035.

Primary expenditures, meanwhile, are expected to fall from 18.8% of GDP in 2025 to 16.3% in 2035 in the baseline scenario. This decline is projected to begin in 2027, accelerating as court-ordered government debt payments (precatórios) are fully included under the spending cap. However, the lower house passed a bill yesterday, with government backing, to phase in precatórios under the fiscal target starting in 2027 over a ten-year period—a change not reflected in the Treasury’s projections.

The report also accounted for the recent decree raising Financial Transactions Tax (IOF) rates. However, on Wednesday, Supreme Court Justice Alexandre de Moraes suspended the IOF on certain receivables financing transactions.

Additionally, the Treasury notes that with mandatory spending projected to grow at an average real rate of 2.9% per year, there will be a reduction in discretionary spending, which can be freely adjusted.