Brazil & Southern Cone - April 2026

When Fernando Haddad took on the job of Brazil’s finance minister in January 2023, he was greeted with widespread scepticism. Markets saw the former university professor and leftist intellectual as too weak and inexperienced, while President Luiz Inácio Lula da Silva’s own Partido dos Trabalhadores (PT) considered him too business friendly. Over three years later, after stepping down in March to prepare his bid for the governorship of São Paulo state, Haddad leaves a mixed legacy, one that reflects the complex political realities that he operated in.

Haddad’s time as finance minister has seen several positive changes for the economy, but also persistent challenges. Unemployment hovered near record lows, and the economy consistently grew faster than projected. But public debt rose sharply and the objective to recover Brazil’s investment grade remained aloof given a poor fiscal performance. He helped pass reforms that satisfied business leaders, while also appeasing the left with reforms that increased the tax burden on the wealthy.

By far Haddad’s biggest achievement was the ‘reforma tributária’, a sweeping reform of a complex and unwieldy tax system that stifled productivity and cost Brazilian businesses vast amounts of time and money [EB-24-01]. Various previous administrations had tried and failed to carry out such a reform, which required forging a delicate accord between opposing state governments, businesses, and special interest groups. The reform pushed by Haddad did not just tweak the tax code but essentially rewrote much of it. By late 2023, the government secured a constitutional amendment to simplify consumption taxes into a dual VAT (value-added tax) system. The reform is expected to fuel an additional 12% of GDP growth over the next 15 years.

A second reform in November 2025 took aim at Brazil’s notoriously large gap between rich and poor by increasing the tax exemption for lower income households and by increasing the tax for the country’s wealthiest citizens, including their income from corporate profits and dividends. Until now these had not been taxed, meaning very wealthy business owners essentially paid no taxes. For individuals earning between R$50,000-R$100,000 (US$9,800-19,600) per month, the tax rate increased by up to 10%. “The era of the poor paying more than the billionaire is ending,” Haddad said upon approval of the law.

Haddad’s stint as finance minister also saw an ecological transformation plan under which the national development bank (BNDES) shifted its focus to financing low-carbon technologies, while Brazil issued its first massive ‘green sovereign bond’ in New York in 2023. Critics say Brazil lagged its peers with both developments and point out that some of the so-called green investments by the BNDES went to major mining companies with a questionable carbon footprint.

Overall, the Lula administration’s environmental track record has been mixed, with significant advances in reducing deforestation but also setbacks to Brazil’s green credentials with the government’s support for controversial development projects, such as oil exploration in the ecologically sensitive waters of the equatorial margin off the Amazonian coast in the north.

Then there is the fiscal tightrope that Haddad has had to walk. He tried to improve the country’s weakened public finances while facing pressure from the PT and Lula himself to increase spending, with the government proclaiming budget targets but then eroding them by discounting all sorts of extraordinary expenses. The ‘arcabouço fiscal’, the new fiscal framework introduced in 2023, was a case in point. It replaced the rigid spending cap of the previous administration and aimed to allow for social investment up to 70% of revenue growth. The underlying argument is that welfare spending should not be seen as an expenditure, but an investment.

But no matter how the spending is classified, the bottom line is that Brazil under the stewardship of Haddad spent far more money than it had. The 12-month budget deficit widened from 4.6% of GDP in December 2022 to 8.5% in February 2026. To cover the gap, the government had to borrow more money, which increased gross public debt to 79% of GDP by February 2026, marking an increase of around six percentage points compared to the end of 2022.

To offset a lax fiscal policy and help contain inflationary pressure, the central bank (BCB) had to tighten monetary policy in 2024-2025, a position that has caused tensions with the Lula administration. Investors too are charging Brazil more to buy its debt and help finance its deficits. That means Brazilian companies become less competitive than those in countries with stricter fiscal discipline and lower interest rates.

Line-item fixes will be insufficient to balance the budget. Pensions and civil servant salaries currently consume nearly 90% of the federal budget. Without a reform of mandatory spending, the arcabouço could eventually snap under the weight of an ageing population. Other pressures straining public finances include the subsidies and tax exemptions that the ‘centrão’, the powerful bloc of clientelistic parties that dominate congress, will fight to protect.

The ‘secret budget’ that served as a slush fund for legislators under the previous government of Jair Bolsonaro (2019-2023) may have been declared unconstitutional by the supreme court (STF) in 2022, but congress retains its grip on the federal purse through the budgetary earmarks known as ‘emendas parlamentares’. The next administration must decide whether to continue governing by distributing pork-barrel spending or attempt a risky constitutional rebalancing of powers by challenging congress’ hold on the budget, although pushing for a potential reform on the emendas parlamentares would likely be an arduous political battle for any future finance minister.

Under Brazil’s electoral rules, Haddad needed to step down by 4 April, or six months before this year’s general election, in order to run for public office. In almost all cases in which cabinet members stepped down this year, their deputies took their place. That was true for Haddad, who was replaced by the finance ministry’s executive secretary, Dario Durigan. Typically, these caretakers do not rock the boat with major policy initiatives.

But Durigan will have to hold the fort during the turbulent election campaign, a period that is usually marked by clashes with the opposition and the dissemination of fake news. That involves defending proposals by Lula, such as the end of the six-day work week [EB-26-03] and an income tax on workers’ profits and earnings. Lula’s economic advisors also recently mentioned the possible review of social benefits and a reform of payroll taxes.

Another issue on the economic agenda in 2026 is the regulation and transition process to implement the tax reform. The government is working to implement the new CBS consumption tax in 2027 and must publish transition rules this year that are likely to kick up more controversy in an election year. But perhaps the biggest question is whether Durigan will be able to follow in Haddad’s footsteps and help contain Lula’s propensity to spend more money than is available.

Public mood

A public opinion survey by Quaest polling firm in March showed that a growing share of Brazilians are not impressed by the economic legacy Haddad and Lula are leaving behind. The percentage of people who believe the economic situation has worsened over the past year reached 48% in March, the highest in six months. Only a quarter of those polled said the economy improved.

Slower growth in 2025

Brazil’s annual GDP growth stood at 2.3% in 2025, which is the lowest annual growth rate in the past five years for Latin America’s largest economy. The result for 2025 halts the upward trend in recent years, following annual growth rates of 3.4% in 2024, 3.2% in 2023, and 3% in 2022. Economic growth last year was mainly driven by the agricultural sector, which posted an annual growth rate of 11.7%. The industrial sector posted 1.4% growth, and the services sector registered a growth rate of 1.8%.