Brazil’s government has brought its primary budget more or less back into balance over the past year, which has helped to improve investor confidence and drive a rally in Brazilian bonds. But delivering the fiscal tightening needed to meet the budget target in 2026 is likely to be more difficult, given the pressure for pre-election spending increases. The risks remain skewed towards a faster rise in the debt ratio, which could challenge our dovish interest rate forecast and trigger a renewed sell-off in Brazilian assets.
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