Brazil will unveil within days a package of measures to deliver a fiscal adjustment equal to 0.5 percent of gross domestic product (GDP) in 2027, a government source has said, as President Luiz Inacio Lula da Silva moves to reassure investors after his re-election.

The plan was first reported by Brazilian news outlet G1 and confirmed by Reuters, which cited a government source speaking on Tuesday. The measures are expected to be presented in a bill put forward by a government-backed lawmaker, rather than directly by the government itself. The finance ministry did not immediately respond to a request for comment.

What the package is expected to include

The adjustment would amount to between 70 billion and 80 billion reais next year, equivalent to between 12.5 billion and 14.3 billion US dollars at the exchange rate cited by Reuters.

One of the measures would exclude extraordinary revenue from the basis used to calculate the constitutional spending floors for health and education, even when there is a surplus. Another pillar of the package could be a new cut to tax benefits, according to the source.

The details are still to be finalised, and the government has not yet published the full list of measures. But the outline gives the clearest signal so far of how Lula intends to answer the market pressure that has followed his re-election.

Markets sold off after Lula’s re-election

The step comes after Brazilian financial markets sold off following Lula’s re-election late in October, as investors questioned whether the government would deliver a fiscal adjustment large enough to stabilise public debt.

Since the election, the Brazilian real has weakened, long-term interest rates have risen and the benchmark Bovespa stock index has slumped. Lula defeated right-wing Senator Flavio Bolsonaro in a surprise runoff turnaround on 25 October.

Gross public debt has risen by more than 10 percentage points during Lula’s current term to reach 82.9 percent of GDP, amplifying concerns that campaign pledges would fuel additional government spending.

Lula reaffirms commitment to fiscal responsibility

In a televised address to Brazilians on Sunday, Lula reaffirmed his commitment to fiscal responsibility and said he wanted to help bring down high interest rates.

The central bank paused its easing cycle last week, keeping the benchmark interest rate, the Selic, at 13.75 percent as it grappled with a worsening inflation outlook that some analysts say has been boosted by market fears over a declining fiscal policy scenario.

The coming fiscal package will be watched closely in Brasilia and in the markets. If the measures are passed, they would set the terms for the first full year of Lula’s new term and test whether the government can hold spending within limits that investors consider credible, while protecting the health and education budgets that the spending floors were designed to guarantee.

Sources: Reuters and WNCY (Reuters).