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Brazil’s Rio Grande do Sul secures $200 million IDB loan to consolidate fiscal stability

Strengthening fiscal management will allow increased public investment

Brazil’s state of Rio Grande do Sul will receive a loan of $200 million from the Inter-American Development Bank (IDB) to consolidate the fiscal stability through reforms that increase the state’s public investment capacity.

The operation is a Policy-Based Loan (PBL), which provides flexible support for institutional and policy reforms through fast-disbursing funds.

"The project will allow the state of Rio Grande do Sul to enact reforms in the areas of taxation and public spending that ensure fiscal consolidation and economic growth through more investment-related public-private participation,” said Gerardo Reyes-Tagle, IDB project team leader.

The project will support reforms in four areas.

The first area is bolstering the fiscal framework, with policies aimed at strengthening the framework and tax revenues, as well as improving the efficiency of public spending, according to the fiscal targets agreed with the federal government.

The second refers to public debt management, which provides the creation and implementation of a strategic management committee the state’s debt.

The third deals with strengthening of public investment, with the implementation of the program management of Public Private Partnerships (PPPs), the formulation of a policy for industrial development, as well as the creation of protected fundraising and citizen participation in Secretary of State Planning.

Finally, the fourth area deals with macroeconomic stability and fiscal sustainability, supporting the implementation of policies of fiscal responsibility and balancing the state by maintaining the favorable macroeconomic context of the state to achieve program objectives.

Among other results, collection of the Tax on the Circulation of Goods and Services is expected to rise from $9.75 billion in 2011 to $10.75 billion in 2014, and a reduction in spending on medicines and medical services of $282 million in 2011 to $264 million in 2014. Investment volumes in infrastructure areas and industrial districts are expected to increase from $6 billion in 2011 to $30 billion in 2014.

The IDB financing has a 20-year term, a grace period of five and a half years, and an interest rate based on LIBOR.