In 2023, half of Brazil’s municipalities faced severe fiscal challenges, as reported by the National Confederation of Municipalities (CNM).
Their study, The Context of the Fiscal Crisis in Municipalities, revealed a staggering deficit of R$17.9 billion ($3.42 billion).
Consequently, many municipalities struggled to generate enough revenue to provide essential public services.
Major expenses included personnel payments, investments, and operational costs.
Causes of the Fiscal Struggle
The CNM attributes this financial strain to declining transfer revenues and rising public expenses.
The post-pandemic recovery and the weakening of the federal pact exacerbated these issues.
Budget expert Cesar Lima explains that municipalities faced reduced revenue from contributions.
However, he argues that this wasn’t the main problem. “The real issue is the increasing services that federal laws require municipalities to provide,” Lima says.
Federal Contributions and Their Shortcomings
The Municipal Participation Fund (FPM) from 2022 to 2023 saw a 13.6% increase despite a decline in federal tax revenue.
Lima emphasizes the need for the federal government to improve its financial support for municipal services.
For instance, in school transportation, the government contributed only R$1 ($0.19) per student, while municipalities spent R$12.53 ($2.40).
“This financial imbalance severely impacts municipalities,” he adds. “Legal obligations to provide more services add pressure, especially in an election year.”
The study reveals that in 2023, current expenditures on education, social assistance, and health exceeded personnel costs.
These expenditures grew by 13.2%. Personnel costs rose by 2.2%, together accounting for nearly 41% of the fiscal increase.
Public investment jumped by 29.7%, an increase of R$24.7 billion ($4.72 billion).
Growth in Social Sector Employment
Municipalities saw significant growth in social sector jobs, covering education, health, and social assistance.
Excluding those without job information in the Annual Social Information Report (Rais), there was an increase of 1.7 million jobs.
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