Core Viewpoint - Brazil's federal government debt is approaching unsustainable levels, projected to reach 84.3% of GDP by 2028, up from a previous estimate of 81.8% at the end of last year [1][2] Group 1: Debt Projections - By 2025, Brazil's government debt as a percentage of GDP is expected to rise to 79%, compared to 76.5% in 2024 [2] - The Brazilian Senate's Fiscal Independent Institution (IFI) predicts that by 2035, debt could reach 124.9% of GDP, indicating a severe fiscal pressure [2][5] - The current trend suggests that by 2027, all available budget income will be consumed by mandatory expenditures, leaving no discretionary space [2][3] Group 2: Economic Conditions - High interest rates, currently at 15%, and rigid spending are contributing to a "fiscal vicious cycle," where high deficits lead to increased borrowing costs [3][4] - Brazil's real interest rate is projected to be 9.76% in 2025, the second highest globally, which significantly raises the cost of financing for businesses [2][3] - The Brazilian government aims for a zero primary deficit by 2025, but allows for a deficit of 31 billion reais (approximately 0.25% of GDP) [3] Group 3: External Challenges - Recent U.S. tariffs of up to 50% on certain Brazilian products add uncertainty to Brazil's economic outlook [4] - The government is implementing emergency plans to support affected industries without relying on large-scale fiscal subsidies [4][5] Group 4: Structural Issues - The core issue of Brazil's fiscal predicament lies in uncontrolled spending, with mandatory expenditures growing faster than available income [5][6] - Experts suggest that to stabilize debt, Brazil needs a primary surplus of 2.1% of GDP, assuming interest rates drop to 4%-5% and economic growth averages 2.2% annually [5][6] - Without reforms, the next president in 2027 will face a deep fiscal restructuring challenge, exacerbated by high interest rates and rigid spending [5][6]