The government of Luiz Inacio Lula da Silva (PT) has allowed an additional limit of R$3 billion for states and municipalities to obtain new loans in 2025. This is the second expansion of the financing space, which now reaches a total of R$21 billion this year.
The review was approved on Thursday (27) at a meeting of the National Monetary Council, a group formed by Ministers Fernando Haddad (Finance) and Simon Tippett (Planning) and Central Bank President Gabriel Gallipolo.
In practice, this measure means that governors and mayors will be able to access new funds in the last period of 2025, a strategic period for implementing contracts and being able to start planned investments before facing restrictions imposed by electoral legislation in 2026.
In September, the government had already raised the ceiling on loans to states and municipalities, because these entities had practically exhausted the original space of R$15 billion for these operations. At that time, the increase also amounted to R$3 billion.
The Finance Ministry said in a note that the limits were “practically exhausted” again.
The ministry also said it had verified that countries with debts with the union that are part of fiscal adjustment or monitoring programs will not use all the space allocated for credit operations this year.
These operations fall outside the ceiling set by the issues matrix network. With the review underway, the government saw scope to expand the overall limits without compromising the 2025 fiscal outlook.
As it appears from BoundSince 2023, Lula’s government has changed the financing policy of regional governments and encouraged the granting of large amounts of loans, mainly through federal public banks.
In just the first two years of the PT member’s term, states and municipalities received internal loans worth R$94.5 billion. The value does not take into account external operations contracted with multilateral organizations, whose licenses exceeded US$5.8 billion in 2023 and 2024.
The pace of granting these loans has entered experts’ radar as a worrying factor. Boosted by federal funding and transfers, states and municipalities in recent years have accelerated and expanded investments and spending on personnel, spending more than the union itself and reaping the electoral gains that derive from these policies.
Greater concentration of expenditures has also increased the power of its influence on the national political chessboard, as evidenced by this Bound In the “Fiscal Challenge for States and Municipalities” report series.
In 2025, experts expect a slowdown in the issuance of new loans to regional governments. But the increase in limit creates the conditions for this movement to be more timid.
The CMN decision changes the boundaries of operations in three ways.
In credit contracts guaranteed by the union (which pays the installments in case of default), the value rose from R$9.5 billion to R$12.1 billion.
In the case of operations without a treasury guarantee, the limit increased from R$4.3 billion to R$4.6 billion.
The government also reviewed the space of sealed operations for investments under the new Growth Acceleration Program (PAC). The credits guaranteed by the Union increased from 2.7 billion Brazilian riyals to 2.9 billion Brazilian riyals. Those without guarantees remained at R$1.4 billion.
The government also eliminated a limit of R$100 million that had been set aside for contracts under the PPP. The new limits will be available to entities from Friday (28).