LATAM Today: June 30, 2026

Research evidence excerpt

LATAM Today: June 30, 2026

Goldman Sachs LATAM Today

R$56.1bn deficit in May. The consolidated public sector is running at a 1.14% of GDP primary

fiscal deficit, with the overall public sector fiscal deficit (primary surplus minus net interest

payments) at a high 9.62% of GDP. The fiscal deficit has exceeded 8% of GDP every single year

of the Lula administration. The stock of gross general government rose 90bp to 81.1% of GDP,

up from 71.7% at end-22 (94.3% of GDP according to the IMF standard definition), and is

expected to continue to climb given the loose fiscal stance. Lack of spending control has

severely undermined the credibility of the fiscal targets and contributed to an over-heated

over-indebted economy. Furthermore, a weak fiscal anchor has increased fiscal risk premia,

leading to unanchored short- and medium-term inflation expectations.

We expect the gross debt dynamics to remain on an upward trend in the coming years.

Placing the debt dynamics on a structural sustained declining trend and building fiscal

buffers remain key macro challenges. That would require structural primary fiscal

surpluses above 2% of GDP, which would contribute to lowering the neutral real interest

rate. Such an outcome is very unlikely in the near term, in our view.

DETAILS:

1. The consolidated public sector posted a R$56.1bn deficit in May, wider than market

consensus and the R$33.7bn deficit a year ago. The central government recorded a

large R$55.2bn deficit and the states and municipalities a smaller R$1.2bn deficit.

The state-owned enterprises, in turn, posted a small R$0.3bn surplus.

2. On a 12-month rolling basis, the consolidated public sector recorded a 1.14% of

GDP primary fiscal deficit; with the states and municipalities running a small R$3.3bn

deficit (0.03% of GDP).

3.