The Rio Legislative Assembly (Alerj) approved on Thursday afternoon the bill that authorizes the state to join the State Debt Repayment Program (Propag), a mechanism created by the federal government to restructure the state’s debts to the Union. The vote came amid warnings from lawmakers about the seriousness of Rio’s fiscal situation and that legislative authorization does not guarantee immediate practical effects on next year’s budget.
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The project, drawn up by the executive branch, allows the Rio government to make a formal request to join the program before December 31, the deadline set by the Union. However, MPs stressed that this approval represents only a first step in a long negotiation process with the National Treasury and the Ministry of Finance.
– What is happening here today is the legislative authorization necessary for the state to formally request membership. From then on begins a negotiation which is not rapid and will not produce immediate effects – declared deputy André Corrêa (PP), president of the budget committee of the Chamber.
According to Corrêa, the state is going through “the most difficult moment in its financial history,” with a projected deficit of around 20 billion reais. He recalled that Rio can currently only remain operational thanks to an injunction issued by Minister Dias Toffoli, of the Supreme Federal Court, which limits the payment of the debt to the Union to 4.9 billion reais per year.
– The debt forecast in the budget for next year is around 12.5 billion reais. With the injunction, it is expected to pay around 5 billion reais. Propaganda is fundamental to keeping the State alive, but it does not solve everything – he said.
The parliamentarian compared the debt of the State of Rio de Janeiro to an unpayable loan. According to him, it would be like borrowing R$15, paying R$250 over 25 years and still owing R$200. In this scenario, Propag would make it possible to restructure the debt, making it less expensive, but without bringing the State into a comfortable situation in the short term.
– Even with the full implementation of Propag, we are talking about a reduction of around 8 billion reais. Despite this, the deficit would be around 12 billion reais, which is extremely large and tends to paralyze investments – he warned.
During the vote, the deputies approved an amendment presented by the dean of the Chamber, Luiz Paulo (PSD), which obliges the executive branch to transmit to Alerj a revision of the budget within 30 days following the possible implementation of Propag. The text was incorporated as a subamendment to the annual finance law.
Luiz Paulo explained that the 2025 budget was prepared based on the fiscal stimulus regime, forecasting a deficit of around 19 billion reais. By joining Propag, this gap could fall to 12 billion reais, which would require a readjustment of the budget.
– It’s another budget. After accession, we hope that the government will send Alerj a revision which will no longer concern the tax recovery regime and will become that of Propag. Stopping interest payments next year is the only possible reprieve for the state at this time. If you keep the budget as it is, there is no way out – he said.
According to the MP, only after formal accession and the conclusion of negotiations with the Union will it be possible to accurately calculate the reduction in the deficit. He stressed that the amendment also aims to adapt the budget to the new main results parameters, spending limitations and debt repayment targets defined in the program.
Despite the expectation of a reduction in the deficit, parliamentarians considered that there are uncertainties regarding the effective implementation of Propag in 2025. One of the main assets that the State intends to offer the Union to join the program is the National Regional Development Fund, created by the tax reform, but which has not yet been regulated.
– If the main asset has not even been regulated yet, it shows that this negotiation is neither simple nor quick. It is likely that the practical effects will not occur in the first half of next year – estimated André Corrêa.
Under Propag’s rules, the state can attempt to reduce up to 20% of the debt stock – currently estimated at around 200 billion reais – by delivering assets to the Union. This means putting on the table a package of around 40 billion reais, which could include active debt, funds and properties, to reduce the interest charged, which would no longer be IPCA plus 4% per year and would be corrected only by inflation.
Although Propag does not come into full force, MPs say Rio should continue to be supported by the Supreme Court injunction that limits annual debt payments. The approval of the project was nevertheless seen as an essential step to avoid the state’s budgetary collapse in the years to come.
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