(Bloomberg) -- Brazilian markets were set for the worst week in months after a much vaunted plan to cut government spending came in well short of expectations, adding to angst over the country’s budget.

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The plan, detailed by Finance Minister Fernando Haddad on Thursday, sent the currency tumbling to an all-time low, and stocks down the most since 2023. Losses extended Friday as US markets came back from a holiday, with the real tumbling as much as 1.7% before rebounding as Haddad, along with Congress leaders, tried to reaffirm their commitment to fiscal constraint.

Even with the bounce, the currency is still down more than 3% this week, the most since late 2022 and by far the worst in emerging markets. The nation’s benchmark Ibovespa stock index, which also recouped some losses on Friday, is heading for its biggest weekly drop since March 2023.

Investors have rushed to dump Brazil assets this year amid concern over the nation’s growing debt levels as President Luiz Inacio Lula da Silva increases spending to fulfill pledges of improving living standards for the poor. Data on Friday showed the nation’s nominal budget deficit widened to 74.68 billion reais in October, from 53.8 billion reais the previous month. Economists had projected a deficit of 50.1 billion reais.

‘Throwing in the Towel’

A long-awaited plan unveiled by Haddad to cut 70 billion reais ($11.6 billion) from public spending through 2026 was seen as insufficient to stabilize the growing budget deficit. Lula’s decision to tack on a tax exemption measure for the poor only added to concerns, watering down the package’s savings and signaling a lack of buy-in from the left-wing president to a fiscal adjustment.

“The announcement of the fiscal package was perhaps the government’s last chance to signal that it’s concerned about the debt trajectory,” said Rafael Oliviera, an equity fund manager at Kinea Investimentos. “Local investors are throwing in the towel.”

The growing distrust of the government’s fiscal commitment has hit inflation expectations, pushing the central bank to hike interest rates just as the Federal Reserve eases monetary policy. Swap rates have surged, with markets pricing in a hike of 92 basis points in the benchmark Selic rate in December and another 90 points in January.

“The Brazilian market is very sensitive to negative fiscal headlines and will continue to apply a higher risk premium absent comprehensive structural changes to fiscal expenditures,” said Katrina Butt, a senior economist at AllianceBernstein in New York. “The question now is how the central bank will incorporate this new information.”