Punished since last week by floods caused by heavy rains, Rio Grande do Sul will still face the challenge of rebuilding entire cities with a disastrous picture also in its public accounts. Under a fiscal recovery regime since 2022, the state is considered one of the most deficient in the country and has the worst grade (D) assigned by the National Treasury regarding its payment capacity (Capag).
The factors that led to this situation date back to a period of almost five decades, in which state accounts showed recurring deficits. According to data from the state’s Finance Department (Sefaz), over 50 years, between 1971 and 2020, only in seven cases were revenues greater than expenses, which ended up generating an insoluble liability.
In order to keep the state structure functioning despite the sequence of negative results, the deficits were covered by debt, through credit operations or the issuance of public bonds.
Revenues from privatizations, disposals of shares in the state bank, tax advances, delays in payments from suppliers and installments of salaries and 13th salary payments for civil servants also helped to overcome the problem. In other words, over decades, the state postponed the issue, without finding a definitive solution.
According to the latest annual report on Rio Grande do Sul’s public debt, at the end of 2022, the balance – which includes national and international credit operations, as well as payment in installments of court orders, social security debts and other contributions – reached R$93.6 billion . In the next update, scheduled to be released at the end of May, the value will be close to R$102 billion.
According to the National Treasury Secretariat, in the third quarter of 2023, the proportion of Rio Grande do Sul’s net consolidated debt (DCL) over net current revenue (RCL) reached 185.4%, above the alert level provided for in the Fiscal Responsibility Law ( LRF), which is 180%.
To give you an idea, in Paraná – which in addition to being in the same region, has similar levels of population, revenue and participation in GDP – the DCL is negative. In other words, the state’s consolidated debt is smaller than its cash availability and other financial assets.
The low rate of economic growth and excessive spending on public service are the main reasons that lead Rio Grande do Sul to this situation, explains economist Gustavo Inácio, professor of the Postgraduate Program in Development Economics at the Pontifical Catholic University of Rio Grande do Sul (PUCRS).
Data from the Regional Accounts System (SCR) of the Brazilian Institute of Geography and Statistics (IBGE) show that Rio Grande do Sul was the federative unit with the second lowest average variation in Gross Domestic Product (GDP) between the years 2002 and 2021 (1.6% per year), ahead only of Rio de Janeiro (1.3%), which is also under the tax recovery regime.
The Rio Grande do Sul government’s payroll, in turn, carries, in addition to an excessive number of employees, a series of benefits accumulated over time by civil servants. Inácio highlights that in all state administrations since redemocratization there has been an increase in the number of public employees, especially those linked to education, health and public security, but without adequate planning.
“There are schools in the interior of the state with an average of 15 to 20 high school students per class. In Paraná, high school classes have up to 35 students. There was planning that took into account territory instead of population”, explains the PUCRS professor. This, according to him, regardless of whether the current government is more to the right or more to the left.
Since 1982, the Piratini Palace has occupied Jair Soares (PDS), Pedro Simon (PMDB), Sinval Guazzelli (PMDB), Alceu Collares (PDT), Antônio Britto (PMDB), Olívio Dutra (PT), Germano Rigotto (PMDB), Yeda Crusius (PSDB), Tarso Genro (PT), José Ivo Sartori (PMDB) and Eduardo Leite (PSDB). The current governor is the first to serve a second term in the state since redemocratization.
The increase in personnel expenses at a faster pace than the growth in current revenues weighed heavily on the fiscal unsustainability of Rio Grande do Sul. Furthermore, the high life expectancy of the population of Rio Grande do Sul and the history of the constitution of the public machine, prior to the great part of the other states, has meant that the portion of the Budget allocated to the payroll of inactive employees today exceeds that of active employees in areas such as health and education. According to Sefaz, the social security deficit exceeds R$10 billion annually.
In recent years, the current government approved an administrative reform package in the Legislative Assembly that eliminated several additional benefits, such as three-year, five-year periods and other bonuses for length of service, in addition to the incorporation of bonus functions into the retirement benefits of inactive employees. “All of this was overturned, but, as they are acquired rights, it will take a few decades to manifest themselves on the payroll”, says Inácio.
Adherence to the fiscal recovery regime and other measures taken by the current government, including the institution of a state spending ceiling, privatizations such as that of Companhia Riograndense de Saneamento (Corsan) and the increase in the ICMS modal rate, allowed the state to obtained a positive primary result in the last three years, interrupting the long history of deficits.
Poorly made agreements worsened Rio Grande do Sul’s fiscal situation
Controversial agreements also contributed to the growth of public debt in Rio Grande do Sul. In 1998, with a debt of around R$9 billion, then governor Antônio Britto (PMDB) refinanced the liabilities with the federal government, under the command of Fernando Henrique Cardoso (PSDB). At the time, it was decided to use the IGP-DI as a correction indicator, instead of the IPCA.
In the following 15 years, however, the IGP-DI registered an increase of almost 250%, while the IPCA was just above 150%. In 2014, under the administration of Tarso Genro (PT), the then President of the Republic Dilma Rousseff (PT) sanctioned a complementary law that changed the inflation index for calculating debt, making the IPCA effective.
The following year, the then governor José Ivo Sartori (PMDB) began his term by suspending, initially temporarily, the payment of the portion of the debt with the Union. The moratorium ended up being maintained by an injunction granted by the Federal Supreme Court (STF) from July 2017. Disbursements were only made again in 2022, when the state’s fiscal recovery regime was approved.
For the PUCRS professor, the agreement, signed under the federal administration of Jair Bolsonaro (PL), in a year of presidential and government elections, was signed on unrealistic bases.
The text considers, for example, an average economic growth in Rio Grande do Sul of 3% per year. “Brazil doesn’t do that. It is difficult to imagine that a state that from 2002 to 2021 had an average growth of 1.6% per year, the penultimate among Brazilian states, can grow 3% per year”, he says. “This impacts the level of revenue, is reflected in the level of expenses and the debt takes on a greater proportion within the state budget.”
According to the plan, the installments will increase over time until reaching the maximum value in 2032. “For 2024, a payment of R$3 billion of the debt was already expected, equivalent to R$250 million per month. As a reference, the state’s payroll is around R$1.9 billion for the year.”
Federal government suspends RS debt collection until the end of the year
The difficulty in dealing with public accounts was highlighted by Eduardo Leite on Sunday (5), during a press conference. “Rio Grande do Sul is already a state that has difficulty operating normally due to fiscal restrictions. The problem we have with debts incurred over time here in the state already makes it difficult for us to act in times of normality”, said the governor.
This Tuesday (7), the government of Luiz Inácio Lula da Silva (PT), responding to the request of the government of Rio Grande do Sul, announced that it will present a project to suspend the payment of monthly installments of Rio Grande do Sul’s debt until December 31 this year, due to the calamity caused by rain in the state. “There remains a need to negotiate a new agreement with new parameters”, assesses Inácio.
On the same day, the Senate approved a draft legislative decree that recognizes a state of public calamity in Rio Grande do Sul and allows spending on aid to the state to remain outside the fiscal target.
The text, which had already been approved in the Chamber, will be promulgated by Congress, allowing the government to release extraordinary credits destined for the Rio Grande do Sul territory without affecting the rules for containing public spending.
With the destruction of a large part of the state’s productive potential and the need to rebuild entire cities, the state’s fiscal situation tends to worsen even further.
In 2023, Rio Grande do Sul contributed 6% of the national GDP, occupying fifth place among the federative units with the greatest participation in economic activity. “The state’s GDP is concentrated in the Eastern region, which includes the coast, the metropolitan region of Porto Alegre and Serra Gaúcha”, explains the economist.
“It was exactly this range that was most affected by the floods, so you can imagine that we are talking about something close to 5% of Brazilian GDP that is probably at a standstill for the next month”, he says.
For the PUCRS professor, the trend pointed out by climatologists of more recurrent similar events from now on should still generate greater insecurity, increasing insurance costs for investment in activities in the state.
“You may see a jump in economic growth during this time of reconstruction, but in general you will have very bad signals for the establishment of contracts,” he says.
Infographics Gazeta do Povo[Clique para ampliar]
Infographics Gazeta do Povo[Clique para ampliar]
