The impossibility of reversing an "unsustainable fiscal situation" in an election year will force the presidential candidate who emerges victorious to take tough measures to contain government spending, prevent the growth of public debt, and facilitate the Central Bank's work in reducing interest rates .

One possible solution would be to repeat the strategy adopted by the government of Michel Temer (2016-2019), which inherited from Dilma Rousseff's administration an economy with strong fiscal and macroeconomic deterioration, including high interest rates (Selic at 14.5%), a nominal deficit of 10% of GDP and high public debt - a situation, in a way, similar to the current one.

The suggestion was made on Tuesday, February 10th, by Mansueto Almeida , chief economist at BTG Pactual , during a bank event where he participated in a panel on macroeconomics with three other economists from the institution.

Almeida painted a bleak fiscal picture of Lula's government. According to him, the current administration made a recent adjustment through revenue collection, while real expenses grew by about 20%.

“This put pressure on inflation and interest rates, raising the nominal deficit to around 8.5% of GDP and the long-term real interest rate to 7.5%, an unsustainable situation,” warned Almeida, considered one of the country's leading experts on public finances.

According to him, the recent appreciation of the real originated from external factors, not from reforms. "The current government created a program outside the fiscal rules in 2024 and 2025 that didn't work, and now we have a serious fiscal problem," he added during the CEO Conference.

The challenge ahead will be significant, he warned. "It will be difficult to achieve the growth we achieved in the last four years over the next four years, because back then there was high unemployment and now it is low; in addition, the low potential economic growth in 2026, estimated at 1.5%, limits traction."

"We will have difficulty growing the economy by 2%, without fiscal adjustment we will not be able to reduce interest rates, and public debt will be a huge problem," he added.

In this situation, Almeida stated that the next government will have to contain public spending and adopt a credible fiscal rule. He advocated for future adjustments through spending control, as was done by the Temer government – in which he participated as Secretary of Economic Monitoring at the Ministry of Finance, overseeing fiscal policy, and later as Secretary of the Treasury.

“The experiences of the Temer period show that controlling spending allowed for a drop in interest rates and an improvement in expectations,” said the current chief economist at BTG. “Controlling spending brings down inflation and interest rates, improves the nominal deficit, and curbs debt,” he added, naming all the serious problems with the current government's economic policy.

Interest rates and the dollar

Regarding Brazil, the BTG panel also discussed the Central Bank's strategy for initiating the cycle of interest rate cuts.

Tiago Berriel , partner and chief strategist at BTG, noted that, despite it being an election year, which is usually marked by exchange rate volatility and a possible expansionary fiscal policy, the expectation is that the Central Bank will cut the Selic rate (currently at 15%) by three percentage points by December.

"The most likely scenario is that we will see cuts of 0.5 percentage points in the next two Copom meetings, with reassessment depending on how the election unfolds," said Berriel. "The acceleration of the cuts, therefore, will depend on a calm environment, without exchange rate shocks or fiscal surprises."

The other panelists discussed topics such as the instability of the dollar and global geopolitics, as well as US monetary policy, the economic impacts of AI, and the deterioration of American institutions.

Economist Eduardo Loyo was cautious about the Federal Reserve's monetary easing under Kevin Warsh 's new leadership, warning against the need for immediate interest rate cuts based on short-term productivity gains from AI.

Samuel Pessoa , a macroeconomic researcher at the bank, argued that productivity gains from AI tend to be lagged and limited in the short term. He highlighted the importance of energy consumption in AI productivity.

He further suggested that the recent devaluation of the dollar reflects an institutional deterioration in the US. "A significant defeat of Trumpism in this year's midterm elections could underpin a new recovery of the dollar," Pessoa warned.