Brazil flips deficit to surplus on oil revenue boost

Why did Brazil's primary balance improve?

The Brazilian government released its July bimonthly revenue and expenditure review (RARDP) on July 24, showing a R$12.3 billion jump in expected net revenue for 2026 compared to the March estimate. Higher corporate income tax (IRPJ) and social contribution on net profit (CSLL) receipts drove most of that gain.

What role did the Middle East war play?

Rising oil prices linked to the Middle East conflict indirectly boosted corporate tax revenue. Because oil companies post larger profits when crude is expensive, IRPJ and CSLL collections rise accordingly. The government's projection embeds a Brent average of US$79.16 per barrel for the year, though the price stood at US$86.10 when the report was published. Secretary of Economic Policy Débora Freire said the parameter grid was locked in during a brief US-Iran truce, and isolating the oil-war effect from other factors is not possible.

Where does the fiscal balance stand now?

The raw primary result is projected at a R$52 billion deficit. After legally permitted deductions, it flips to a R$10.8 billion surplus — above the zero floor of the fiscal framework target but below the R$34.3 billion centre. The IRPJ forecast was raised by R$12.7 billion and the CSLL forecast by R$4.8 billion based on first-half outturns. Spending projections for pensions, personnel and BPC (Benefício de Prestação Continuada) also fell, enabling the government to unblock R$5.7 billion in previously frozen expenditure.

What are the risks ahead?

One key downside risk involves personal income tax (IRPF) on dividends, created to offset the revenue cost of raising the income-tax exemption threshold to R$5,000. Only R$2.2 billion was collected in the first half; the remaining target is R$15 billion, totalling R$17.2 billion for the year against an initial projection of R$28 billion. The estimated revenue waiver from the new exemption ceiling is R$25.8 billion, meaning dividend tax receipts are unlikely to cover it.