Public debt could reach 115% of GDP in 2035

This article was originally published in Exame Magazine, in Portuguese, on April 27, 2026.

Two numbers summarize the Brazilian fiscal dilemma. In the scenario where the government meets its targets, the National Treasury projects a gross debt of 88% of GDP in 2035. But if market expectations for interest rates and growth are confirmed, this number rises to 115.4% of GDP. The number is large, but what it reveals is not new. Brazil has an old and familiar relationship with debt. Taking on debt to grow has become, over the decades, something akin to a State policy — undeclared, but consistently practiced.

In the 1970s, it was foreign debt that financed the II PND (Second National Development Plan): abundant state credit, heavy investment in infrastructure and basic inputs, with the bet that growth would foot the bill. When external interest rates exploded with the “Volcker shock” in the early 1980s and the bill arrived, the government converted external debt into internal debt: it bought dollars from exporters by issuing public bonds to pay external creditors. Trapped in a cycle of continuous refinancing, it paid increasingly higher interest rates to roll over this internal debt.

The price came in the form of rising inflation and recession, and the population paid for it for two decades. In 1994, the Real Plan interrupted this cycle with a clear logic: fiscal adjustment as a condition for a strong currency.

Since then, the problem has changed in form, but not in essence. The inflation of the 1980s destroyed income visibly and immediately, unbearable enough to be confronted. Today’s fiscal problem is more patient. It does not appear in prices. It appears in credit that becomes more expensive, in investment that retreats, in growth that disappoints. It is an invisible tax on the productive sector. The mechanism has a technical name: crowding out.

To understand how it works, think of an analogy: the economy is an aquarium. The water inside the tank is domestic savings — all the money available in the country to be invested in companies, machinery, and jobs. The fish are the companies, which need this water to swim, grow, and hire. Now place a giant sponge inside the aquarium. This sponge is the State when it incurs debt beyond what is reasonable: it absorbs society’s water to finance itself, and the fish are left without space.

With what strange naturalness do we live with interest rates that would be lethal in other countries? If the government, the safest debtor in the country, borrows at 14.75%, no financial institution will lend to the private sector for less than that. The cost of credit rises to 20%, 30%, 40%. Expansion does not happen, projects are canceled, jobs are not generated, and national savings, instead of financing technology and innovation, are absorbed to roll over the State’s debt.

The result appears in the statistics: at the end of 2025, Brazilian companies closed the year with R$ 213 billion in debt and corporate defaults at the highest level on record, according to Serasa Experian.

The cost of this fiscal environment does not stop at companies. According to the Consumer Indebtedness and Default Survey (PEIC) by the CNC, in March 2026, 80.4% of Brazilian families were in debt — the highest level in the historical series. Almost 30% had overdue debts, and 12.3% declared they were unable to pay them. And the credit that finances this indebtedness is significantly more expensive for those with less bargaining power: while companies take out free credit at around 24% per year, families pay an average of 57%.

But then what would be the way out? Here lies a paradox that fuels decades of hesitation. Cutting spending abruptly causes recession, compresses demand, drops tax collection, and can worsen the debt trajectory itself. The answer, however, is not in the choice between adjusting or not adjusting — it is in the credibility of the commitment. A government that consistently signals it will respect its fiscal limits reduces the risk premium, brings down interest rates, and makes room for growth without needing a shock.

The fiscal framework exists. The spending cap existed. There is no shortage of rules — what is missing is the commitment to respect them when the political cost appears. Every time the government finds a loophole, an exception, an off-limit expense, it signals to the market that the rule is negotiable. And the market that receives this signal charges the corresponding risk premium, in interest rates, exchange rates, and credit.

As long as the State occupies the space that should belong to private investment, interest rates will be high, credit will be expensive, families will go into debt to consume the basics, and companies will cancel the projects that would generate the jobs of tomorrow.

The question is not whether Brazil can pay the bill. It is how much longer we will postpone it, and who will pay it instead.