São Paulo and Rio Grande do Sul Strengthen Fiscal Sustainability with IDB Support

WASHINGTON – The Board of Executive Directors of the Inter-American Development Bank (IDB) has approved approximately $267 million in combined financing for the Brazilian states of São Paulo and Rio Grande do Sul to strengthen revenue administration and improve public expenditure management. 

The operations, which include the Bank’s first financing in Brazil denominated in Brazilian reais, will help states implement Brazil’s landmark tax reform through digital transformation, artificial intelligence, data analytics, and innovative fiscal management tools.

The financing is part of the third phase of the Fiscal Management Modernization Program (Profisco III), implemented in coordination with the Brazilian federal government. The program supports one of the most significant fiscal transformations in Brazil’s recent history, helping states adapt their institutions, systems, and processes to the country’s new value-added tax (VAT) framework while leveraging advanced technologies to strengthen fiscal management and improve the delivery of public services.

For São Paulo, the IDB approved a 750 million reais investment loan, equivalent to approximately $167 million. As the Bank’s first operation denominated in Brazilian reais, the financing will strengthen governance, cybersecurity, transparency, and the management of human resources, assets, procurement, and risk. The operation will also support the modernization of information systems and processes to align them with the new VAT framework, while promoting greater systems integration and the use of data, including advanced analytics, to improve decision-making.

For Rio Grande do Sul, the IDB approved a $120 million investment loan to enhance governance, risk management, transparency, digital transformation, and sustainable public administration. The program will modernize tax administration and fiscal litigation using data analytics and artificial intelligence, support the state's adaptation to Brazil’s new VAT framework, and strengthen budgeting, financial management, auditing, and public expenditure systems. It will support the development of strategic digital solutions required for the implementation of the new tax model, including the development of digital systems that will support the operation of the IBS Managing Committee, a key institution in Brazil’s new VAT framework. It will also improve the legal management of fiscal matters to increase efficiency and reduce litigation.

Taxpayers in both states will benefit from more efficient services to meet their tax obligations, while businesses will benefit from a more predictable and favorable business environment. Residents will also benefit from greater fiscal transparency and improved public services resulting from more efficient and results-oriented public expenditure management.

The loan for São Paulo has a term of 24.5 years, with a six-year grace period and an interest rate based on the Brazilian Interbank Deposit Certificate (CDI). Local counterpart financing totals 75 million reais.

The loan for Rio Grande do Sul has a 25-year term, a three-year grace period, and an interest rate based on SOFR. Local counterpart financing totals $12 million.

Following approval by the IDB’s Board of Executive Directors, the programs will move through the required Brazilian legal and administrative processes before implementation begins.