Three-Quarters of All Brazilian Municipalities Struggle to Balance Their Accounts

RIO DE JANEIRO, BRAZIL – Approximately 4,000 Brazilian cities are struggling to balance their accounts. According to the 2019 FIRJAN Index of Fiscal Management (IFGF), prepared by the Federation of Industries of Rio de Janeiro (FIRJAN), the fiscal position of 73.9 percent of all Brazil’s municipalities is considered difficult or critical. Many of them are unable to generate enough revenue to pay for their administrative services and rely on federal transfers to pay municipal workers salaries.

The crisis, which has persisted since 2013, is the result of an equation that combines a lack of autonomy of municipalities to raise their revenues with a growing expenditure on personnel. When the accounts do not balance, the “solution” has been to cut investments and, as a result, compromise the quality of services to the population.

“The municipalities have not yet been able to adapt to this new economic reality in Brazil and are not meeting the population’s wishes and expectations,” says Jonathas Goulart, manager of economics at FIRJAN. According to him, municipal management is worse than five years ago. In the period between 2013 and 2018, personnel expenses grew R$29 billion (US$7.3 billion) while investments dropped R$10 billion.

The FIRJAN study assessed the accounts of 5,337 municipalities in 2018. The data are reported by municipalities by April 30th each year to the National Treasury Secretariat. Only 231 cities failed to submit the data within the deadline – or reported the data with some degree of inconsistency. The FIRJAN index evaluates four indicators in municipal management: Autonomy, Staff Expenses, Liquidity, and Investments.

The worst result was found in the Autonomy Indicator, which measures the city’s potential to generate revenue to cover its expenses. Goulart states that 1,856 municipalities received a zero score in this respect. These municipalities spend, on average, R$4.5 million on administrative structure, but have only R$3 million in local revenues. In total, spending on administrative costs adds up to R$12 billion, while the amount earmarked for health is R$14 billion.

Inequality

The FIRJAN executive explains that this index shows two different countries. In Brazil’s Northeast and North, 71 and 45.6 percent of the municipalities are unsustainable. These percentages are much lower in the remainder of Brazil. In the Southeast, 18.6 percent scored zero in this regard; in the Center-West, 16.4 percent; and in the South, only 6.6 percent.

Another indicator showing the fragility of municipal management is Personnel Expenditure. According to the FIRJAN study, half of all Brazilian municipalities are in a critical situation, spending over the cautionary limit of 54 percent of their revenues. There are 2,635 cities in this situation, 821 of which are in violation of the law, with expenditures above 60 percent.

The best result for the cities was the Liquidity index, which shows the difficulty in the volume of unpaid surplus that is left for the following year without cash coverage. Although the result has been better, 1,121 municipalities were on overdraft for lack of budgetary planning.

The investment rate, although not the worst, is what most affects the population’s lives. “What they invest is not even enough to keep up the worn-out structure during the year,” says Goulart. According to FIRJAN, 47 percent of all city governments are in a critical situation in this regard. Among these cities, the mayors invest less than three percent of the budget.

Source: O Estado de S. Paulo