Brazil is finding itself at the center of a high-stakes fiscal and political drama as its public debt soars to unprecedented heights, while a government-owned bank’s controversial foray into online betting sparks fierce debate at the highest levels. The collision of economic pressures and political maneuvering is testing the resolve of President Luiz Inácio Lula da Silva’s administration, as it tries to chart a course between fiscal responsibility, regulatory ambitions, and the demands of its own coalition.
According to a July 2025 report from the National Treasury, Brazil’s federal public debt reached a staggering R$8.1 trillion, marking a 2.77% increase over the previous month and setting a new record in the country’s financial history. The leap reflects a combination of persistent budget deficits, high interest rates, and mounting mandatory expenditures—especially on social security and subsidies. In June alone, the government issued R$168 billion in new securities to cover the budget gap and refinance maturing obligations, taking advantage of robust demand for fixed-rate and inflation-indexed bonds. Over the preceding 12 months, the debt had ballooned by more than R$800 billion, fueled in large part by the Central Bank’s decision to maintain the Selic rate at 10.75%—one of the highest real interest rates in the world.
The cost of servicing this debt is eye-popping. Government spending on interest payments has now topped R$800 billion per year, or about 7.5% of Brazil’s GDP. "The problem isn't just the absolute size of the debt, but how much it costs to maintain it. With high interest rates and controlled inflation, Brazil pays one of the highest real rates in the world," explained Felipe Salto, former Secretary of the Treasury and public accounts specialist, to BNL Data.
This fiscal squeeze is coming at a time when the government is under pressure to maintain social policies and invest in infrastructure. The Ministry of Finance has set an ambitious target: achieving a zero primary deficit in 2025. Officials insist this is possible if tax collection measures boost revenues enough to outpace rising expenses. Yet, skepticism abounds among financial analysts. The Independent Fiscal Institution (IFI) of the Senate projects that gross public debt will keep climbing, potentially reaching 79% of GDP by the end of 2025—up from 77.6% at the close of 2024—and could soar past 85% by 2027 without decisive reforms.
"Brazilian debt is on a rising trajectory, and the government has not yet presented a credible plan to reverse it. This affects risk perception and makes credit more expensive for companies and families," noted Sergio Vale, chief economist at MB Associados, in comments reported by BNL Data.
Interest costs are the main culprit. Every additional percentage point in the Selic rate tacks on approximately R$30 billion to the government’s annual debt service bill. Alexandre Schwartsman, former director of the Central Bank, put it bluntly: "The country spends more on interest than on education, health, and infrastructure combined. It's a reversal of priorities that limits growth." Despite these daunting numbers, demand for government bonds remains strong, with foreign investors, pension funds, and banks seeking reliable returns. In 2025, non-resident investors held about 10% of Brazil’s total debt—the highest level in five years.
To manage risk, the National Treasury has been working to extend bond maturities and diversify the debt’s indexation. As of 2025, 29% of the debt is linked to the Selic rate, 25% to the IPCA (inflation), 30% is fixed, and the rest is tied to exchange rate fluctuations. The government’s strategy is to increase the share of long-term bonds, which would reduce the need for frequent refinancing and insulate public finances from short-term volatility. "The challenge is to issue longer-term bonds without raising interest rates too much. This requires fiscal credibility and confidence in medium-term goals," explained Karina Rodrigues, a fixed income analyst at XP Investimentos, to BNL Data.
Yet the debt is expected to keep rising. National Treasury projections suggest it could surpass R$8.8 trillion by December 2025, driven by ongoing bond rollovers, new issuances, and the payment of court-ordered debts. Finance Minister Fernando Haddad acknowledged in September that achieving fiscal balance is a "medium-term task" and pointed to new revenue measures, including taxing online gambling and reviewing subsidies, as steps towards containing debt growth.
But the government’s efforts to regulate and tax online betting have set off a political firestorm of their own. On October 26, 2025, President Lula publicly criticized Caixa Econômica Federal’s plan to launch its own internet betting site, "Bet da Caixa." The platform, scheduled to begin operations in late November under three brand names—BetCaixa, MegaBet, and Xbet Caixa—would have positioned the state-owned bank as a major player in the lucrative betting market. Lula, who learned of the plan while abroad, immediately demanded clarification from Caixa’s president, Carlos Vieira, and intends to address the matter personally after returning from Asia.
This move by Caixa is at odds with the administration’s stated goal of reining in the spread of online gambling and taxing the sector more heavily. Lula’s government has been vocal about its intention to target the so-called “three Bs”—billionaires, banks, and bets—in its pursuit of tax justice. Allowing a public bank to enter the market, according to presidential aides, could undermine the legitimacy of these policies and embolden the "bets caucus" in Congress, a group of legislators known for supporting looser caps and lower taxes on gambling. This could make it even harder for the government to push through future bills seeking tighter controls and higher taxes on the industry.
The political stakes are complicated by internal alliances. Carlos Vieira, Caixa’s president, was nominated by the Progressive Party (PP), whose senior members—House Speaker Arthur Lira and Senator Ciro Nogueira—are strong backers of the gambling sector. This dynamic has fueled tensions between the Workers’ Party (PT) and the Centrão, a powerful congressional bloc that often exchanges support for political concessions. Lula’s aides warn that vetoing Bet da Caixa could provoke internal resistance, but they argue that the political cost of letting it proceed would be even greater.
Financially, canceling the project is no small matter. Caixa has signed a multi-year deal with Playtech–VS Technolog for an integrated betting system, and pulling the plug could trigger a breach-of-contract penalty worth hundreds of millions of reais—the full value of the five-year agreement. Nonetheless, officials insist the political and social costs outweigh the economic risks. Internal government surveys show most Brazilians view online gambling negatively, associating it with addiction and social harm.
Finance Minister Haddad is preparing to present new bills to Congress aimed at increasing taxes on online gambling, with a particular focus on the highly addictive "tigrinho games"—online slots and casino-style platforms. While these proposals have been temporarily shelved for adjustments, they are expected to be reintroduced soon, targeting betting platforms rather than general fintech companies. Haddad reiterated that Lula wants Congress "to discuss the taxation of bets," emphasizing the need for tighter regulation to protect public health and fiscal integrity.
Amid these intertwined fiscal and political challenges, rating agencies still consider Brazil’s debt sustainable—provided the government maintains its commitment to fiscal balance. Economists agree that the way forward involves structural reforms, reviewing mandatory spending, and encouraging private investment. "Brazil needs to prove that it can grow without relying on debt. The path forward involves structural reforms, reviewing mandatory spending, and encouraging private investment," said Gustavo Loyola, former president of the Central Bank, in remarks to BNL Data.
As Brazil’s leaders grapple with the dual pressures of mounting debt and political discord over gambling policy, the country’s economic future hangs in the balance—demanding tough choices, careful negotiation, and a clear sense of direction.
