Brazil’s Treasury estimates fiscal risks at R$4.87tn in 2025 - Valor International

Brazil’s National Treasury reduced its estimate of fiscal risks facing the federal government from R$5.09 trillion in 2024 to R$4.87 trillion in 2025. The figure represents events that could affect federal public accounts but are considered “outside the government’s control,” particularly court-ordered payments. The information is part of the Federal Government Fiscal Risk Report (RRFU), released Tuesday (3).

Nearly half (47%) of the risks stem from lawsuits against the federal government. This stock totaled R$2.27 trillion in 2025. In the latest calculation, as of June this year, the amount had fallen to R$2.19 trillion. The Treasury also classified R$888.8 billion as risks related to subnational governments (states and municipalities), R$708.3 billion as tax receivables, R$336.6 billion as federal government guarantees, and R$300 billion as constitutional funds.

The amounts are assigned risk classifications of “remote,” “possible,” or “probable.” The National Treasury says that, of the R$2.19 trillion in outstanding legal claims, R$562 million are classified as probable risks and R$1.62 trillion as possible risks.

Lawsuits classified as “probable” risks are recognized as provisions, affecting the federal government’s balance sheet. Claims classified as “possible” risks are not provisioned. The Treasury said that spending on court rulings rose sharply between 2017, when it totaled R$31.7 billion, and 2023, when it reached R$151.9 billion, but began to decline after 2024 following changes to the rules governing court-ordered government payments, including the settlement of previously accumulated liabilities. The economic team projects costs related to court rulings of R$121.3 billion in 2026 and R$101.2 billion in 2027.

According to Alexandre Andrade, director of the Independent Fiscal Institution (IFI), a Senate-affiliated fiscal policy watchdog, the report shows that risks remain high despite the decline in the amounts involved. The R$4.87 trillion exposure is equivalent to more than one-third of Brazil’s gross domestic product (GDP), he said.

He noted that the decline is almost entirely due to the reclassification of social security lawsuits from possible to remote risk. “In other words, the legal assessment of these cases has changed, but the disputes are still ongoing,” he said.

Andrade also said the report leaves out significant risks for next year, including the transition to the Contribution over Goods and Services (CBS), created by the tax reform; measures announced by the federal government in recent months after the budget bill was submitted to Congress; and credit extended using Treasury funds, which does not affect the primary fiscal balance but increases public debt.

“There is reason for concern, and the government’s own projections show that. The improvement in the primary balance since 2023 is real, but it comes with three caveats: the comparison base is inflated because the 2023 deficit includes an extraordinary payment of overdue court-ordered government debts; the improvement has come mainly from revenue rather than spending; and the actual result is smaller than the amount reported for purposes of meeting the fiscal target,” he said.

In his view, the fiscal effort made so far by the government of President Luiz Inácio Lula da Silva, of the Workers’ Party (PT), is not enough to stabilize public debt. The Treasury maintained its estimate for the increase in general government gross debt included in the 2027 Budgetary Guidelines Bill (PLDO), which projects the ratio rising to as much as 89.7% of GDP in 2030. The indicator currently stands at 82.9% of GDP.

Jeferson Bittencourt, head of macroeconomics at ASA, said the recent decline in fiscal risks “is real, but may be less sustainable than it appears.” Among several factors, he cites recent changes to tax legislation, including the taxation of single-investor funds, offshore assets and minimum income taxation, which “tend to generate litigation over transition rules, tax credits, sector classification, and tax benefits.”

“Disputes over these issues are still at the lower-court level, which makes it less likely that they will be classified as probable or possible risks,” he said. “With spending on court rulings projected at 4.5% of primary expenditure in 2026, legal risks could once again put pressure on public accounts.”

This article was translated from Valor Econômico using an artificial intelligence tool under the supervision of the Valor International editorial team to ensure accuracy, clarity, and adherence to our editorial standards. Read our Editorial Principles.