Ten States Fail to Meet Spending Limit, Risk Paying R$30 Billion to Federal Government

RIO DE JANEIRO, BRAZIL – National Treasury Secretary Mansueto Almeida said yesterday, September 27th, that ten of the 19 states that renegotiated debts with the federal government failed to meet their spending limits.

“They will lose all deferral benefits and be required to pay the extra interest they have failed to pay in the past two years. It’s a bill of more than R$30 billion (US$7.5 billion),” the secretary said.

According to Mansueto, the states are still to be notified and may appeal administratively and judicially. When asked, he did not name the states having trouble complying with the spending limit.

In 2016, Complementary Law 156 enabled the deferral of the states’ debt to the federal government for a further 20 years and the suspension of monthly interest payments from the second half of 2016 until June 2018.

The only requirement for the renegotiation was that the states would commit to limit their current primary expenditure (personnel and costing expenses) to the Broad Consumer Price Index (IPCA) in 2018 and 2019.

Should the states fail to comply with this obligation for two consecutive years, they lose the benefit of extending the debt and would be required to pay, in 12 months, the full benefit from the reduction in interest rates they had since 2016.

According to the National Treasury, the trouble is that there are states, including some with a favorable fiscal situation, that were unable to comply with the demand for a limit on expenditure growth because the fall in inflation was greater than expected when the law was signed.

The Plan for Promotion of Fiscal Balance (PEF) sent in June to Congress solves the situation, because it allows two years for states to reframe the spending ceiling and five years to adjust to the limits of the Fiscal Responsibility Law (LRF), said the secretary.

Source: Agência Brasil