A new World Bank report says Brazil must make major changes to its budget to avoid bigger financial problems in the future. The World Bank, a respected international financial institution, released this warning on June 26, 2025.

It says Brazil needs to cut government spending by about 3% of its total economy (GDP) to keep its finances healthy. Brazil’s government owes a lot of money—almost 80% of what the country produces in a year.

This is one of the highest debt levels among large developing countries. The World Bank says Brazil cannot just raise more taxes because taxes are already high for people and businesses.

Instead, the government should focus on spending less, especially on pensions and public sector salaries. Right now, Brazil spends a huge amount on pensions—12.7% of its GDP. Most similar countries spend much less, around 7.7%.

The World Bank recommends changing the rules so pensions do not automatically grow with the minimum wage and reviewing both military and civilian pensions.

Brazil’s Budget Struggles: Why the World Bank Says Big Changes Are Needed. (Photo Internet reproduction)

Brazil’s budget has become “rigid.” This means most of the money is already promised for things like pensions and social programs, leaving little for new projects or emergencies.

Brazil’s Fiscal Challenges

The government cannot easily move money around or invest in things like roads, schools, or health care. Also, over 60% of Brazil’s debt depends on short-term interest rates. If those rates go up, Brazil will have to pay even more to borrow money.

Recently, the government tried to raise more money by increasing a tax on financial transactions, but Congress rejected this idea. Many lawmakers and business leaders believe that raising taxes is not the answer.

They want the government to focus on cutting unnecessary spending instead. The government has promised to cut about R$25.9 billion from next year’s budget, but experts say this is not enough.

The World Bank also suggests that Brazil could help its finances and the environment at the same time. For example, the country could introduce a carbon tax, raise fuel taxes, and reduce subsidies for fossil fuels.

These steps would bring in money and help fight climate change. Brazil did make some progress with a pension reform in 2019, which will save about R$900 billion over ten years.

But the World Bank says more changes are needed. The government plans to review all spending in 2025 to try to meet its budget goals for 2026.

In short, Brazil faces tough decisions. The country must spend less and make smart changes to avoid bigger problems. What happens next will affect Brazil’s economy, its ability to invest in the future, and how attractive it is to investors around the world.