An expansionary fiscal policy that works against the Central Bank's efforts to slow the economy is what is pushing up Brazil's public debt level, according to economists interviewed by CNN Money.
Besides a global macroeconomic scenario in which interest rates are elevated worldwide, specialists point out that continued public spending is a factor forcing the Central Bank to maintain a contractionary monetary policy.
Luiz Fernando Figueiredo, a former Central Bank director and chairman of the board at Jive Mauá, said high interest rates are a consequence of a problem that is not structural. He said Brazil practices a fiscal policy that always works against the Central Bank, explaining that for inflation to ease, the bank needs to reduce activity and moderate growth somewhat, while the government accelerates and expands spending heavily on the other side.
Debt Costs Climb
In the twelve months through June, interest costs reached 1.16 trillion reais, equivalent to 8.8% of gross domestic product, up from 912.3 billion reais, or 7.41% of GDP, in the twelve months through June 2025.
Brazil's benchmark interest rate currently stands at 14.25% a year. Given uncertainties ahead, the Selic rate is expected to fall at a very slow pace, with economists surveyed by the Focus report forecasting the rate will remain in double digits until 2028.
"Not Explosive" But Debt Is Higher
Carlos Kawall, a partner at Oriz Partners and a former National Treasury secretary, said the current interest rate level is not explosive as in other crisis moments the country has faced, but noted that the debt level today is much higher. He said the amount of time the country can live with such elevated real interest rates is not very long, adding that the pace at which debt and interest rates are growing is suffocating the private sector and setting up a recession or crisis that would worsen the fiscal problem once tax revenue falls. He concluded that Brazil cannot survive for long with this level of real interest rates and public debt growing.
Debt Approaching 82% of GDP
Brazil's General Government Gross Debt, which includes the federal government, the INSS social security institute, and state and municipal governments, rose to 81.9% of GDP in June, reaching 10.4 trillion reais.
If the current path continues, the figure should surpass 100% of GDP between 2032 and 2035, according to a study by the Budget Consultancy of the Chamber of Deputies.
The country faces what the study calls "fiscal fatigue," a loss of capacity to stabilize debt growth through primary surpluses, since there are limits to both raising taxation and cutting current spending. Paulo Bijos, the consultant who authored the study, said Brazil appears to already operate in a zone of resistance to further tax burden increases, and that public spending will tend to face constant pressure in coming years due to the country's ongoing demographic transition.
