Rio May Not Pay Back Debt to the Federal Government
By Richard Mann, Contributing Reporter
RIO DE JANEIRO, BRAZIL – Even if the Fiscal Recovery Regime (RRF) is renewed until 2023, the debt of the State of Rio de Janeiro with the Union is unpayable unless there is a structural change in the economy of Rio de Janeiro, according to State Secretary for the Treasury Luiz Claudio Rodrigues de Carvalho.
By the end of 2023, gross indebtedness is expected to reach R$ 170 billion, the equivalent to 237 percent of Net Current Revenue (RCL). The ceiling defined by the Fiscal Responsibility Law (LRF) is 200 percent of the RCL and the State would only have eight months to adjust to the limit.
This deadline would be insufficient, as projected by the Rio de Janeiro Treasury. By the end of 2024, the indebtedness of the State would be equivalent to 221 percent of the RCL.
“Rio must completely restructure its economy. If there is no significant growth in the economy of the state and, indeed, of the whole of Brazil, this debt is unpayable,” Carvalho told Valor. The consolidated debt of the Rio de Janeiro government closed last year at R$ 153 billion, which corresponded to 265.3 percent of RCL.
“Given the current scenario, Rio’s finances are improving because of the measures we are taking and are going to reinforce. But these measures, in the present scope, in the current situation, are not enough for the state to be restructured by 2023, to honor the service of the legacy debt, the one that forms after all these years without payment,” Carvalho said.
The Tax Recovery Regime, which Rio de Janeiro joined in 2017, is scheduled to last three years and may be extended by three more. During this time, debt payments with the Union are suspended.
Data compiled indicate that between 2010 and 2015, the government of Rio de Janeiro contracted R$ 24.7 billion in credit operations. Of this total, almost one third (R$ 7.9 billion) was invested in the implementation of new subway lines. The second largest volume of loans – R$ 5.3 billion or 21.5 percent of credit operations in the period – was used to amortize debts.
“In 2024, if we do not have another [financial] muscle, I do not know what’s going to happen,” Cavalleiro said. “We have to pay attention to the revenue, not the expenses,” argued the prosecutor. According to data reported by the State Treasury to MPRJ, the tax benefits granted by the government of Rio de Janeiro resulted in a waiver of effective revenue of R$ 73.08 billion between 2007 and 2017.
The solution, in the prosecutor’s view, would be to invest in the technological modernization of the Treasury, expanding the fight against tax evasion and verifying the calculated amounts of incentives.
Despite the unfavorable situation, Secretary Luiz Claudio Rodrigues de Carvalho does not see debt renegotiation as a solution to the fiscal crisis. “Not the renegotiation of the debt, but rather the Union providing conditions for the State to grow, making concessions of the infrastructure that is federal here in the State, and creating macroeconomic conditions for the development of the country,” he said.
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