Brazil’s government is facing an urgent need to manage court-ordered debt payments due in 2027. With a Supreme Court ruling allowing the temporary exclusion of these payments from fiscal limits, officials must decide on measures prior to the April 2026 budget guidelines. The rising trend of these debts poses significant concerns for fiscal stability, prompting discussions regarding potential extensions and spending adjustments. Experts emphasize that solutions need to be formulated to prevent a fiscal crisis ahead of the 2027 fiscal year.
As Brazil approaches 2027, the urgency of addressing court-ordered debt payments has intensified. Under President Lula, the economic and legal teams are actively seeking methods to alleviate the fiscal burden posed by recent court rulings. Despite some officials advocating for discussions to happen after the upcoming elections, a more cautious perspective insists that deliberations must take place prior to April 2026, the deadline for drafting the next year’s budget guidelines.
Court-ordered government debt payments issued by the judiciary before the end of March are included in the following year’s budget, while those issued from April onwards are slated for the budget two years later. Thus, any decisions made after April will significantly affect the fiscal planning for the 2027 budget.
In 2023, a ruling from the Supreme Court permitted the Lula administration to exclude substantial parts of these court-ordered payments from spending limits for three years, temporarily easing the financial strain on the budget. Nevertheless, this reprieve is set to conclude in 2026, and in December 2023, the government made a substantial payment of R$92.4 billion in court-ordered debts to prevent further complications.
Within the government, there is a faction advocating for either an extension from the Supreme Court or a new constitutional amendment to prolong the transition period beyond the next presidential election. The current budget accounts for R$102.7 billion in court-ordered payments and small-value claims, with R$44.1 billion exempt from fiscal rules due to earlier Supreme Court decisions.
Internal estimates suggest that court-ordered payments continue to rise, with projections indicating a spike to R$116.3 billion by 2027. Felipe Salto, a chief economist at Warren, emphasized the severity of this issue, stating, “This is one of the most concerning issues for fiscal stability.”
The Finance and Planning ministries, in collaboration with the Attorney General’s Office (AGU), have made strides to manage these payments and reduce their fiscal impact. A crucial initiative has been the establishment of a Council for Monitoring and Managing Fiscal Judicial Risks. While improvements have been noted, officials acknowledge that further efforts remain essential to alleviate the primary fiscal impact associated with these debts, especially since approximately 43% arise from pension claims.
The AGU reported that over the past two years, it has successfully avoided R$1.9 trillion in potential losses through favorable court rulings, though the average wait time for these payments remains around eight years. Attorney General Jorge Messias recognized that the long-standing nature of these issues means that immediate resolutions are not feasible.
Among various initiatives launched by the AGU is the “Pacifica” program, which aims to settle disputes before they reach the courts and includes preventive measures against fraud in litigation. The agency is particularly focused on high-value lawsuits originating from the sugarcane and ethanol sectors, which could ultimately cost the government as much as R$140 billion.
Internal discussions this year highlighted differing perspectives on handling court-ordered payments, with Finance Minister Fernando Haddad’s team proposing to classify only the principal as primary expenditure, while Planning Minister Simone Tebet’s team believed the entire amounts should be classified as primary spending.
Experts warn that by 2027, a solution must be reached, as the trend in court-ordered payments shows no signs of diminishing. Jeferson Bittencourt highlighted the fiscal implications, stating, “The rising trend in court-ordered payments, including RPVs, is a significant fiscal concern.”
Potential solutions include significant spending cuts to incorporate these payments into the budget, with suggestions such as revising constitutional spending limits on essential services and implementing minor pension reforms. Sergio Vale remarked, “The only solution is to integrate these payments into the budget,” emphasizing the necessity for an adjustment to prevent a repeat of past economic crises.
The urgency surrounding these discussions is clear as the Lula administration faces fiscal challenges similar to those experienced during former President Bolsonaro’s term. This indicates that decisive action is needed to address the mounting court-ordered debts as 2027 approaches.
The Finance and Planning ministries chose not to provide comments on the ongoing discourse or proposed strategies.
As Brazil grapples with a looming deadline for court-ordered debt payments, the government’s efforts to address these financial obligations have become critical. With a substantial amount of payments already accounted for, officials are exploring ways to manage these debts before the situation escalates further. Urgency is palpable among economists and government officials alike, who recognize the need for a viable long-term solution as figures suggest growing expenses in the coming years. Therefore, it is imperative for the Lula administration to implement strategies that will incorporate these payments into the budget effectively, to avoid a repeat of historical fiscal crises. The outcome of these deliberations will undoubtedly shape Brazil’s fiscal landscape in 2027 and beyond, necessitating rapid and decisive action to navigate these challenges.
Original Source: valorinternational.globo.com
