Golden Revenues, Empty Coffers: Brazil’s Municipal Cash Crunch Deepens Despite Record Windfall

Brazil’s cities saw their biggest revenue surge in 2024 yet still struggle to balance budgets. Firjan’s Fiscal Management Index hit 0.6531, its highest since 2013. Federal transfers drove much of the growth.

The Municipal Participation Fund rose from R$120 billion (about $22.6 billion) to R$177 billion (about $33.4 billion) over five years, and Fundeb education funding jumped from R$48 billion (about $9.1 billion) to R$87 billion (about $16.4 billion).

Yet 36 percent of municipalities remain in difficult or critical financial states, affecting 46 million people. Behind these numbers lies a growing dependency on federal aid.

Over half of Brazilian cities cannot generate enough local revenue to cover basic administration. In 1,282 towns, councils rely entirely on transfers for payroll and operations. This dependence leaves little room for long-term planning or local investment.

Payroll costs also strain budgets. Municipalities increased personnel spending by 29.1 percent from 2019 to 2024, outpacing inflation. More than 540 towns now spend over 54 percent of their income on salaries and benefits, diverting funds from services and projects.

Some cities boosted investments—1,601 municipalities dedicated at least 12 percent of revenue to development. Yet 938 invested just 3.2 percent, widening regional inequality.

Experts warn that without reforming transfer rules and strengthening local tax systems, Brazil risks perpetuating chronic fiscal imbalances. Higher revenues cannot fix structural flaws alone.

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