Brazil’s financial markets have sold off sharply this year as investors grow increasingly anxious about the spending plans of leftwing President Luiz Inácio Lula da Silva’s government.

The Brazilian real is the second-worst performing emerging market currency against the US dollar so far this year, its 10 per cent decline ranking behind only the Turkish lira and the peso of perennially troubled neighbour Argentina. Meanwhile, the local Bovespa equity index has dropped 8.6 per cent over the same period. 

While emerging markets in general have been hit as investors dramatically scale back their expectations for US interest rate cuts this year, money managers and economists also cite growing concerns over the viability of Brasília’s plan to balance the public finances through extra tax collection, while also increasing spending.