06/17/2024 – 19:10
In May, the National Treasury paid R$1.17 billion in late state debts. Of this total, the majority, R$775.78 million, is related to late payments by the government of the state of Rio de Janeiro. Next came the payment of debts of R$231.12 million from Rio Grande do Sul and R$110.64 million from Minas Gerais.
Last month, the Union also covered R$75.04 million in Goiás’ debts. In 2024, the federal government has not yet paid outstanding debts from municipalities.
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The data is in the Report on Guarantees Honored by the Union in Credit Operations, released this Monday (17) by the National Treasury Secretariat. Guarantees are executed by the federal government when a state or municipality defaults on a credit operation. In this case, the Treasury covers the default, but withholds transfers from the Union to the debtor entity until the difference is paid, charging fines and interest.
In the year to date, the Union paid off R$4.198 billion in outstanding debts from subnational entities. Of this total, R$1.66 billion went to the state of Rio de Janeiro, R$1.513 billion to Minas Gerais, R$647.79 million to Rio Grande do Sul and R$377.86 million to Goiás.
Decrease
The number of states with outstanding debts covered by the Treasury fell in 2024. In 2023, in addition to the states above, the Union honored guarantees from Maranhão, Pernambuco, Piauí and Espírito Santo.
The guarantees honored by the Treasury are deducted from the Union’s transfers to federated entities – such as revenues from participation funds and Tax on Circulation of Goods and Services (ICMS), among others. Overdue obligations are subject to interest, late payments and other operational costs relating to the period between the due date of the debt and the effective honoring of the amounts by the Union.
Tax Recovery Regime
In recent years, decisions by the Federal Supreme Court (STF) prevented the execution of counter-guarantees from several states in financial difficulty. Subsequently, the court mediated negotiations for the inclusion or continuity of state governments in the fiscal recovery regime (RRF), which provides for the installments and staggering of debts with the Union in exchange for a spending adjustment plan. In recent years, Goiás, Rio de Janeiro and Rio Grande do Sul have signed agreements with the federal government.
At the beginning of the covid-19 pandemic, the court granted an injunction to suspend the execution of guarantees in several states. Some counter-guarantees in Minas Gerais were also not executed due to injunctions granted by the Supreme Court.
With the adhesion of the state of Rio de Janeiro to the RRF, at the end of 2017, the state was able to contract new credit operations with a guarantee from the Union, even though it was in default. At the end of 2020, Minister Luiz Fux, from the STF, granted an injunction keeping Rio de Janeiro in the fiscal recovery regime. In June last year, the state, in an agreement mediated by the STF, concluded negotiations with the Union to continue in the RRF.
Also in June 2022, Rio Grande do Sul signed an agreement with the Union and had the approved tax recovery plan. The plan allows the state to repay, in a phased manner, the Union’s debt, the payment of which had been suspended by an injunction from the Federal Supreme Court since July 2017. In exchange, the government of Rio Grande do Sul must execute a fiscal adjustment program that provides for privatizations and reforms to reduce local spending.
Due to the floods in the state, in May, the Union suspended payment of the debt for 36 months. In addition, the interest that corrects the debt annually, around 4% per year plus inflation, will be forgiven for the same period. The state’s debt with the Union is currently around R$100 billion and, with the suspension of installments, the state will have R$11 billion to be used in reconstruction actions.
In May 2020, the STF authorized the government of Goiás to adhere to the fiscal recovery package in exchange for the adoption of a state spending cap. In December 2021, Goiás signed adhesion to the RRF, which allows the suspension of debt payments with the Union in exchange for a spending adjustment plan.
Minas Gerais
The only indebted state that has not joined the RRF is Minas Gerais. In July 2022, Minister Nunes Marques, of the STF, granted an injunction that allows the state to negotiate an adjustment plan with the Union without the need to reform the state Constitution. In the same month, the National Treasury published a ordinance authorizing the Minas Gerais government to prepare a proposal that makes admission into the program official.
Currently, the Legislative Assembly of Minas is analyzing a state RRF bill. In November last year, the government agreed with the proposal of the president of the Senate, Rodrigo Pacheco, to federalize state-owned companies places to pay the state’s debts to the Union.
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