Lower interest rate, extra revenue help states cut debt levels
The distribution of proceeds from the auction of surplus pre-salt oil reserves and the reduction of the interest rate made possible for states to improve their indebtedness ratios in 2019.
Twenty out of 26 states plus the Federal District reduced their debt levels. Of the others, the indebtedness rose in Minas Gerais, Rio de Janeiro and Rio Grande do Sul, states that grapple with a bigger fiscal imbalance. Rio and Rio Grande do Sul have already gone over the cap set by the Fiscal Responsibility Law (LRF).
Valor's survey doesn't include Roraima, state whose 2019 data are not available in the reports released by the National Treasury Secretariat. The indebtedness ratio is measured by the relation between consolidated net debt and net current revenue.
George Santoro, finance secretary of Alagoas, says revenues from the oil auction were transferred to states and municipalities on December 31. They amounted to R$11.7 billion, of which R$6.4 billion went to states. Since the amounts entered on the last day of the year, they were booked as 2019 revenue. Mayors and governors had not time to use the funds, so they bolstered cash reserves at the close of the year.
Such extra revenue has a double effect on indebtedness ratios, says Vilma da Conceição Pinto, a researcher at Fundação Getulio Vargas's Brazilian Institute of Economics (Ibre-FGV). By adding to cash reserves, which are deducted from the debt to identify the consolidated net debt, it contributed to reduce the numerator used in the indebtedness calculation. At the same time, the amount is also added to the net current revenue, which is the denominator.
Yet circumstantial factors also favored states last year, Mr. Santoro says. States that renegotiated their federal debt in 2016, he explains, pay installments calculated by the balance updated according to a coefficient of monetary adjustment that compares the variation of the Selic benchmark interest rate and of the Extended Consumer Price Index (IPCA) plus 4% in 12 months. This type of adjustment was adopted to avoid the sudden effect of rate or inflation swings in the payments owed by the states. Since states may choose between Selic and IPCA plus 4%, and the interest rate fell in 2019, there was a bigger amortization of debt, Mr. Santoro says.
He adds that the states unable to benefit so much from the rate reduction were those with dollar-denominated debts, borrowed from foreign lenders. This is because the real's devaluation made the debt...
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