The fiscal arcabouço that replaced the rigid expenditure ceiling in 2023 was greeted with skepticism by Brazilian fixed-income markets — and reasonably so, given the country's record of fiscal frameworks that broke under pressure. Two full budget cycles in, the picture looks different. The framework's expenditure brackets have been adhered to, the primary balance trajectory has held within tolerance, and the latest budget submission tightens key parameters rather than loosening them. The term-premium embedded in Brazilian sovereign curves no longer needs to assume framework collapse.
Key takeaways
- The arcabouço has survived two budget cycles intact.
- Primary balance trajectory is within tolerance bands.
- Term premium in the 5–10y NTN-B curve has compressed materially.
- BCB has space to cut faster than the consensus path suggests.
Why this framework is holding
Three reasons. First, the rule is procedurally robust — breaches trigger automatic correction mechanisms. Second, Congress has shown willingness to amend the lower-priority items rather than the framework itself. Third, the Treasury team has built credibility through transparent execution.
- Automatic correctors. Mechanical, not discretionary.
- Political backing. Cross-party support has held.
- Treasury credibility. Issuance is being matched to demand.
What it means for the Selic path
If the term-premium component of long Brazilian rates is genuinely compressing, the equilibrium real rate can step down. That gives the BCB room to cut faster without weakening the real or threatening the inflation target.
Where the equity market sits
Ibovespa is still trading below long-run multiples — the rerating mostly has not happened.
What could break it
A return of off-budget spending, or a political swing that loosens the framework.
Selic and inflation
| Period | Selic | IPCA |
|---|---|---|
| Mid-2024 | 10.50% | 4.2% |
| Mid-2025 | 9.25% | 3.8% |
| Mid-2026 | 8.50% | 3.5% |
Brazil's fiscal framework has stopped being a story about whether it works and started being a story about how much it has compressed term premium.
Frequently asked questions
Is fiscal risk gone?
No — it is reduced, not gone.
Will the real strengthen further?
Possible, but the BCB has signaled comfort with current levels.
Where does Brazilian equity sit?
Below long-run multiples — rerating runway exists.
The bottom line
Brazilian fiscal credibility has been quietly earned. The reward is showing up in the term premium first, in the policy rate second, and in equity multiples last.
