Lula Disapproval Hits 49% in BTG/Nexus Poll, Tightening Race Elevates Fiscal Reform Risk

President Luiz Inácio Lula da Silva’s political mandate appears increasingly fragile, with a new BTG/Nexus poll released Monday showing his government’s disapproval rating climbing to 49%, while approval rests at 47%. This marginal shift in public opinion comes as the country moves closer to the 2026 general elections and, critically for investors, coincides with a tightening presidential race that is expected to further complicate the passage of controversial but necessary fiscal reforms. The same poll showed Lula leading Senator Flávio Bolsonaro, son of the former president, by 47% to 43% in a simulated second-round scenario, a gap that constitutes a technical tie within the poll’s two-point margin of error.

This combination of rising rejection and a statistical dead heat in the next election is expected to pressure Brazil’s financial assets, which remain highly sensitive to fiscal credibility. On the B3, the Ibovespa has been trading near 174,041.95, while the Brazilian Real traded near 5.086 to the U.S. Dollar. The weakening of the President’s political capital makes it significantly harder to push contentious measures through a fragmented and often oppositional National Congress, especially those aimed at stabilizing the nation’s long-term debt trajectory.

For the government, the immediate consequence of this high disapproval is an increase in the political cost associated with austerity measures or revenue-generating initiatives like tax reforms. Policy continuity and the commitment to fiscal discipline are being actively questioned by markets, a central concern that has contributed to keeping Brazil's Selic rate elevated even as inflation has moderated. High interest rates are required to compensate investors for the elevated fiscal risk, as any slippage in budget targets could trigger capital outflows and currency weakness.

The mechanism for the political risk is clear: the prospect of a high-stakes second-round contest against a right-wing challenger will push the Lula administration toward increased pre-election spending or parafiscal measures to boost short-term economic activity, further jeopardizing long-term fiscal health. The administration has already faced resistance in advancing reforms to the income tax code and wealth taxes, measures intended to secure long-term revenue.

Investors should monitor congressional developments closely, particularly any movement on the government’s flagship fiscal bills or spending caps, as failure to secure approval will be seen as a direct consequence of the President's diminished political leverage. The next round of major polling, expected in the coming months, will be a key indicator for gauging whether the electoral risk premium currently priced into Brazilian assets, including the Real and Brazil ETF products, will ease or continue to accelerate.