Brazil's October presidential election gives voters a tight contest between left and right, but investors see few real differences on fiscal policy between the two leading candidates, according to a Reuters report carried by Folha de S.Paulo. Market analysts expect the country's public debt to keep rising regardless of who wins the race between President Luiz Inácio Lula da Silva, of the Workers' Party (PT), and Senator Flávio Bolsonaro, of the Liberal Party (PL).

Flávio has sharply criticized the current government's economic policy in his bid to defeat Lula, who holds a narrow lead in the polls. According to the report, analysts are already pricing in a possible Lula win followed by a modest fiscal adjustment, one that would only slow the pace of debt growth rather than reverse it. Markets, however, remain skeptical that either candidate can credibly launch a significant shift in the trajectory of public debt.

The scale of the fiscal challenge

Stabilizing Brazil's debt by 2031 would require a fiscal effort of at least 2.5 percentage points of GDP (gross domestic product), roughly 350 billion reais (about US$65 billion), according to calculations by Roberto Secemski, Barclays' chief economist for Brazil, based in New York. He said an adjustment of that scale runs into Brazil's rigid budget structure and a fragmented Congress, making it "exceptionally difficult" no matter who occupies the presidential palace.

"It seems unlikely that either candidate will be able to carry out a full fiscal effort [of that magnitude]," Secemski said.

The Barclays economist noted that the winning candidate's first measures in office will serve as an important signal to investors, since they need to be robust enough to convince markets that further adjustment steps will follow.

Debt and deficit figures

Central Bank data cited in the report show Brazil's nominal deficit averaged 8.6% of GDP between 2023 and 2025, and rose to 9.99% of GDP in the 12 months through June. Gross government debt reached 81.9% of GDP, up 3.3 percentage points over the period covered by the analysis.

The election adds another layer of uncertainty to whoever wins the presidency and tries to push fiscal measures through. Beyond the presidency, October's vote will also decide all 513 seats in the lower house of Congress and 54 of the 81 Senate seats, a legislative outcome that market watchers say will be central to whether any fiscal proposal, from either Lula or Flávio Bolsonaro, can actually pass. Brazil's National Congress has two chambers, and a fragmented result would make sweeping budget cuts harder to negotiate regardless of who wins the top job.