In a voice vote on Thursday (12), the National Congress approved Bill of the National Congress (PLN) 23/2026, authorizing the federal government to issue R$ 149.4 billion in debt operations above the constitutional limit. The funds will be used to cover mandatory spending on Social Security, the Continuous Cash Benefit (BPC), and the Bolsa Família welfare program without violating fiscal law.
What Did Congress Approve, and Why Does the R$ 149.4 Billion Proposal Unlock the Budget?
Deputies and senators approved the release of supplemental credit to bypass the constitution's so-called Golden Rule. This provision prohibits the government from borrowing money—by issuing sovereign debt—in volumes exceeding its capital expenditures (investments). When current expenses exceed this ceiling, the Constitution requires approval of supplemental credit by an absolute majority of the National Congress.
The approval unlocks essential resources to prevent a standstill in social payments at the end of the fiscal year. Without the passage of the bill, the National Treasury would lack the legal margin to issue government bonds and transfer funds to program beneficiaries, risking charges of fiscal responsibility violations.
Although the measure was already anticipated in the federal government's budget projections, it highlights the rigidity of the Brazilian budget. The majority of public accounts now consist of mandatory expenses, drastically reducing room for investments and requiring constant legislative maneuvering to keep the state apparatus running.
Where Is the Money Approved by PLN 23/2026 Going?
The total funding authorized by the legislative measure is intended to cover cash shortfalls across three high-impact social fronts. Here is a breakdown of how the supplemental credit will be allocated:
| Credit Destination | Expense Type | Budget Impact |
|---|---|---|
| Social Security Benefits | Mandatory | Covering the deficit of the General Social Security System (INSS) |
| Continuous Cash Benefit (BPC) | Mandatory | Payments to low-income seniors and individuals with disabilities |
| Bolsa Família | Income Transfer | Maintaining monthly direct transfer payments |
The growth of these spending lines stems from demographic trends and the indexing of benefits to the minimum wage. Alongside the approval of supplemental credit, we are following negotiations between the executive and legislative branches on spending-cut measures aimed at curbing the expansion of these mandatory expenses through 2027.
How Does Approving Supplemental Credit Affect the Yield Curve and Fiscal Risk?
For the financial market, the approval of PLN 23/2026 is not a legislative surprise, but rather a bitter reminder of the volume of new debt the National Treasury will need to place on the market to finance the deficit. Issuing roughly R$ 150 billion in new government bonds means flooding the market with additional supply, which requires higher risk premiums to attract investors.
This recurring need for direct borrowing is reflected in the widening yields on forward interest rate contracts (DIs). When the market realizes the state requires substantial volumes of supplemental borrowing to cover day-to-day operational expenses, long-term interest rate demands tend to rise.
Attention to Fiscal Risk: The need to resort to the Golden Rule exception reinforces credit rating agencies' warnings regarding public debt. Without structural reform to cut permanent expenses, continued bond issuance drives up the debt-to-GDP ratio and puts upward pressure on inflation over the medium term.
This dynamic reinforces skepticism regarding the effectiveness of austerity signals. In previous analyses, we examined the financial market's reaction and the private sector's assessment of whether current proposals bring permanent effects to public accounts or merely temporary cash-flow relief for the government.
The government's need to issue more debt creates two direct effects on your portfolio: it drives up yields on fixed-rate and inflation-linked fixed-income assets, while increasing the cost of capital for publicly traded companies.
- Fixed Income: Yields on long-term inflation-linked bonds (IPCA+) tend to remain elevated (above 6% or 6.5% real), reflecting the premium demanded by the market. For investors looking to hold bonds to maturity, these rates are attractive, but long-term securities experience mark-to-market volatility in the short term.
- Real Estate Investment Funds (FIIs): Higher long-term interest rates reduce the relative appeal of dividend yields from brick-and-mortar FIIs, keeping shares trading at a discount to their net asset value. Meanwhile, paper FIIs indexed to the CDI or IPCA continue to benefit from high yields.
- Equities: Highly indebted companies or those dependent on domestic consumption face higher credit costs. Export-oriented and defensive sectors (utilities, commodities) tend to show greater resilience in scenarios of persistent fiscal risk.
What to Monitor in the Coming Months on the Fiscal Agenda
Releasing the supplemental credit resolves the immediate operational problem of the 2026 budget, but shifts pressure to subsequent fiscal cycles. Investors should watch three specific catalysts:
Progress of the Spending-Cut Package — Monitor the government's ability to pass reforms in Congress that alter the indexation of BPC and social security benefits.
National Treasury Auctions — Observe investor demand and required yields in primary issuances of NTN-F and NTN-B bonds in the coming months.
Revenue and Expense Assessment Reports — Monitor bimonthly spending freezes to check whether further supplemental allocations will be required going forward.
The Verdict for Investors
Congress's approval of the R$ 149.4 billion averts the immediate risk of breaching the Golden Rule, but highlights the state's reliance on debt issuance. For your portfolio, the scenario calls for caution regarding very long-term bonds, favoring post-fixed or inflation-linked fixed-income assets with intermediate maturities to lock in high yields while fiscal uncertainty persists.
