From primary surplus to persistent deficit, with only partial fiscal normalization afterward
The Primary Fiscal Balance, expressed as a 12-month sum relative to GDP, measures the difference between government revenues and expenditures excluding interest payments on public debt. As a rolling indicator, it smooths short-term volatility and provides a clearer assessment of the underlying fiscal stance.
It is widely used to evaluate the sustainability of public finances, as persistent primary deficits imply increasing reliance on debt accumulation, while primary surpluses contribute to stabilizing or reducing the debt-to-GDP ratio over time.
Recent dynamics
The series shows a pronounced deterioration throughout 2023, moving from a primary surplus at the beginning of the year to a significant deficit by year-end. The decline was gradual but persistent, with the balance turning negative mid-year and continuing to worsen into December.
In 2024, the fiscal position remained deeply negative for most of the year, stabilizing at around historically weak levels before improving sharply in the final months, largely reversing part of the accumulated deficit. In 2025, the adjustment continued, with the balance briefly returning to near-neutral or slightly positive territory in the first half of the year, before gradually deteriorating again in the second half.
By early 2026, the indicator remained moderately negative, indicating that the earlier fiscal improvement was only partially sustained.
Interpretation and economic signal
The trajectory of the primary balance reflects a shift from a relatively supportive fiscal position to a more expansionary stance, followed by a partial consolidation. The sharp deterioration in 2023 and the persistence of deficits in 2024 suggest a combination of increased expenditures and weaker structural revenues, reducing the government’s capacity to generate primary surpluses.
The improvement observed in late 2024 and early 2025 indicates the presence of temporary or cyclical factors supporting revenues or constraining spending, but the subsequent loss of momentum highlights the fragility of the adjustment. From a macroeconomic perspective, a primary balance hovering around deficit territory implies limited fiscal space and increases the sensitivity of public debt dynamics to interest rates and growth conditions.
Sustained deficits at this level tend to require favorable macro conditions to prevent debt ratios from trending upward.
Conclusion
The recent evolution of the Primary Fiscal Balance points to a fiscal environment characterized by deterioration followed by only partial and temporary improvement. While the sharp adjustment observed between late 2024 and early 2025 suggests some capacity for fiscal correction, the inability to maintain a consistent surplus indicates that the fiscal stance remains structurally weak.
In practical terms, the current level of the primary balance suggests that Brazil’s fiscal position is still dependent on supportive macroeconomic conditions to stabilize debt dynamics, with limited margin for adverse shocks or sustained increases in financing costs.