Rio announces deal to continue on federal fiscal recovery program

rio de janeiro Governor Cláudio Castro of Rio de Janeiro. Photo: Fernando Frazão/ABr
Governor Cláudio Castro of Rio de Janeiro. Photo: Fernando Frazão/ABr

Governor Cláudio Castro of Rio de Janeiro on Tuesday announced his state’s renewed adhesion to the federal fiscal recovery program. 

The new agreement between the state administration and the federal government was approved by the Treasury Department on February 25 and validated today by the Supreme Court.

Since 2017, the state of Rio de Janeiro has been in the fiscal recovery program, which allows for the suspension of payment in installments of states’ debt to the government, in exchange for austerity measures — such as cutting spending, freezing civil servants’ salaries, and local privatizations. 

In the first three years of the program, the state avoided paying BRL 92 billion (USD 18 billion) to the federal purse. Under new rules passed by Congress in 2021, the regime no longer allows for the complete suspension of repayments, but rather allows states to pay lower amounts.

To ink the new deal, Rio de Janeiro committed itself to limiting the growth of its primary spending to the IPCA inflation rate, Brazil’s benchmark consumer price index. Otherwise, BRL 24 billion would still have to be paid this year.

But in the five years since Rio entered the fiscal recovery program, the state has been unable to recover its finances. Without a deal, the administration would probably see a repeat of 2017 — when civil servants’ wages were delayed and several state bodies stopped buying essential inputs due to a lack of funds. 

The federal government also announced today the adoption of the fiscal recovery program by the southern state of Rio Grande do Sul, another one burdened with crippling debt.

The fiscal situation of most state governments has been in the red for the last few years, and state finance secretaries believe that a bill Congress recently passed to cap state fuel taxes will make things worse.