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Brazilian State of Rio Grande do Sul to Bolster its Public Finances

The Inter-American Development Bank (IDB) approved a $500 million loan to boost the fiscal sustainability of the state of Rio Grande do Sul in Brazil. 

The program will help the state reduce its court-ordered payment obligations. These obligations, known as precatorios, arise when the state misapplies legislation or uses flawed or outdated management instruments and systems. Broadly speaking, the precatorios include fines and/or indemnities for violations of the labor rights of the state’s employees or pensioners.

This operation is part of the reforms that the state has implemented during the last years and will contribute to reach the goals of the Programa del Régimen de Recuperación Fiscal, agreed between the state and the Federal Government.

The IDB financing, approved by the Bank’s Board of Executive Directors, will allow the state to pay these obligations at a discount, reducing their total on its balance sheet. It will also help lower the cost of financing the obligations and enable the state to fulfill its duty to pay them to its citizens, which will reinforce the social contract. The savings from this project will strengthen the state's finances, freeing up resources to implement public policies and ensure that the population receives public services.

Rio Grande do Sul is the sixth most populous state in Brazil. Historically, it has faced significant fiscal sustainability challenges. As of 2021, the approximately 62,000 precatorios totaled 15.221 billion reals, or 28.8% of the state’s current annual net revenue. Also, as part of this project, the state will implement a Transparency Portal to improve public accountability towards the citizens.

The project will include steps to strengthen institutions to avoid new precatorios in the future. It will enhance the state's ability to defend itself in court, using artificial intelligence and encouraging alternative means of dispute resolution. It will also improve the payroll and pension systems to reduce errors when paying salaries and mitigate the risks of violating labor and pension rights. 

The $500 million IDB loan to Rio Grande do Sul, to be disbursed based the program’s performance, has a 25-year repayment period, a 3-year grace period, and an interest rate based on the Secured Overnight Financing Rate (SOFR).

About the IDB

The Inter-American Development Bank is devoted to improving lives. Established in 1959, the IDB is a leading source of long-term financing for economic, social and institutional development in Latin America and the Caribbean. The IDB also conducts cutting-edge research projects and provides policy advice, technical assistance and training to public- and private-sector clients throughout the region. Take our virtual tour.



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Molina Medina,Vanessa Carolina

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