Brazil eyes new debt relief with federal guarantees

The government of Brazil is preparing a new credit renegotiation program backed by federal guarantees to address the country's rising household debt. This initiative, which is expected to be announced this week, revives a strategy used during the early stages of President Luiz Inacio Lula da Silva's current term.

The move comes as Lula pushes measures to ease pressure on household budgets ahead of the October elections. Recent polling shows his lead over his main rival, Senator Flavio Bolsonaro, has narrowed to a statistical tie in potential runoff scenarios. The new program follows the model of the previous Desenrola initiative, which utilized a government fund to provide guarantees for low-income borrowers. By absorbing a portion of the default risk, the state encourages private lenders to offer steeper discounts and extended credit terms for debt settlement.

According to sources familiar with the matter, the program will target delinquent borrowers, particularly low-income households, as well as individuals who are current on their payments but carry high debt commitments. A dedicated track will also be established for micro, small, and medium-sized enterprises. To facilitate lower borrowing costs, the government is expected to inject capital into the Operations Guarantee Fund.

One funding option under discussion is the use of unclaimed or forgotten funds within the financial system, which currently total approximately 10.5 billion reais ($2.03 billion) according to central bank data. These figures also reveal that household debt service reached 29.3% of income in January, matching a peak from October 2025 and marking the highest level since the data series began in 2011. Additionally, participants in the new renegotiation scheme will face restrictions on online betting to ensure the financial relief supports long-term stability.