The Half Empty Glass

BRAZIL ECONOMICS - Report 24 Aug 2026 by Alexandre Schwartsman, Cristina Pinotti and Diego Brandao

Gross public debt is expected to reach 83% of GDP by year-end, largely due to interest expenses. The real interest rate, however, is also a result of fiscal policy, which has affected the cost of debt at both short and long maturities. The recent increase in long-term international interest rates worsens the problem, given their influence on domestic rates. Although the risk premium measured by the interest-rate differential is close to its historical average, we see room for additional pressure associated with the absence of changes in fiscal policy. Without a broader change in the dynamics of mandatory spending, this pressure on interest rates is unlikely to ease.

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