Market sees "minimal" effect of the blockade on the problem of public accounts

The additional blockade of R$22.1 billion announced by the government for the 2026 Budget was received by the market as a sign of an attempt at fiscal control, but with a limited effect on the structural problems of public accounts.

Economists interviewed by CNN Money assess that the measure helps contain the deficit in the short term, but does not change the growth trajectory of mandatory spending, which continues to put pressure on the budget.

The federal government increased the total blockade to R$23.7 billion after reviewing spending projections. The main pressures came from Social Security, with an estimated increase of R$11.8 billion; and BPC (Continuous Payment Benefit), with an increase of R$ 14.1 billion.

The containment was necessary to compensate for the worsening of mandatory expenses and ensure compliance with the spending limit provided for in the fiscal framework.

Warren Investimentos pointed out a "minimal impact on the primary result".

Insper's Economics professor, Juliana Inhasz, highlights that the measure aims to signal commitment to the fiscal target.

"It is very clear in Minister Dario Durigan's speech that the government is taking this measure preventively, to show that the situation is not so bad and that they do not want it to get worse", he states.

She assesses, however, that the blockade does not resolve the structural imbalance in public accounts. This is because most of the pressure comes precisely from mandatory expenses, which cannot be cut.

"The adjustment ends up falling on investments, funding and other discretionary expenses. This creates the perception that fiscal space is very tight and that the government may need to make new blockades or even contingencies throughout the year", explains the economist.

According to Inhasz, the preventive nature of the measure itself may show the government's greater concern with the evolution of public accounts.

The announced freeze may indicate the government's difficulty in accommodating mandatory expenses, and "it is possible that the administration is already anticipating a considerable fiscal worsening."

In the economist's assessment, the movement also exposes a contradiction in the conduct of economic policy. At the same time that the government seeks to convey fiscal responsibility by containing expenses, it maintains stimuli and subsidies considered expansionary.

"It seems like a compensation, the government cuts some expenses to be able to maintain more visible expenses in an election year", says Inhasz.

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The chief economist at Lifetime Investimentos, Marcela Kawauti, highlights that the volume of the blockade surprised the market. The expectation was around R$11 billion. However, it considers that the net effect on the fiscal trajectory is reduced because the review was accompanied by an increase in spending projections.

She also remembers that the government continues to promote relevant fiscal and parafiscal stimuli. According to a survey carried out by CNN Money, cited by the economist, the so-called "package of kindness" totals almost R$ 230 billion, equivalent to around 2% of GDP (Gross Domestic Product).

"The fiscal impulse is still very large. The blockade is welcome, but it does not solve the bad fiscal outlook for the future", explains Kawauti.

Kawauti also points out that the composition of expenses reinforces the debate about the need for structural reforms. According to her, the increase in social security and BPC spending reduces the government's ability to direct resources to areas considered more productive.

"If there wasn't so much pressure from mandatory spending, perhaps the quality of public spending could be more efficient", he says.

Despite the deterioration in expenses, Warren preliminarily assesses that the 2026 fiscal target must still be met.

The report cites possible overestimates in personnel expenses, BPC and constitutional transfers, in addition to the expectation of additional revenues linked to the rise in oil prices not yet fully incorporated into the projections.

With information from Vitória Queiroz and Álvaro Augusto, from CNN Brasil

See the 5 signs that Brazil's public accounts are at risk

Source: CNN