Lula's New Term Faces Pressure to Cut Spending and Stabilize Debt

Brazil's re-elected President Luiz Inácio Lula da Silva begins his fourth term on January 5 facing intense pressure to curb spending and stabilize the country's growing public debt, with over 90% of the 2027 budget locked into mandatory expenses. Analysts warn that without structural changes to pension rules, social benefits, and parliamentary amendments, the public debt could exceed 100% of GDP in coming years. Markets reacted sharply to Lula's victory, with the dollar surging and the Ibovespa falling nearly 14%, triggering a circuit breaker for the first time in six years. The fiscal challenge is compounded by chronic deficits since 2014, with debt at 82.9% of GDP and nearly half tied to the Selic rate. Experts say the government has an 18-month window to implement reforms before municipal elections in 2028 hinder unpopular measures.