In 2021, the National Treasury paid R$8.96 billion in overdue state debts. The value is 32.4% more than that registered in 2019, when the Union had disbursed R$ 13.265 billion.
Of this total, most, R$ 4.18 billion, is related to payment delays in the state of Rio de Janeiro. In second place comes Minas Gerais, with R$ 3.13 billion covered by the Union.
The Union covered overdue debts in three more states: Goiás (R$ 1.3 billion), Amapá (R$ 194.32 million) and Rio Grande do Norte (R$ 156.98 million). The federal government also paid off BRL 1.56 million of overdue debts in the municipality of Belford Roxo (RJ).
The data can be found in the Report on Guarantees Honored by the Union in Credit Operations, released today (7) by the National Treasury Secretariat. Guarantees are executed by the federal government when a state or municipality defaults on a credit operation. In this case, the Treasury covers the default, but withholds transfers from the Union to the debtor entity until the difference is paid, charging a fine and interest.
The guarantees honored by the Treasury are deducted from the Union’s transfers to federal entities – such as revenue from participation funds and Tax on Circulation of Goods and Services (ICMS), among others. Overdue obligations are subject to interest, arrears and other operating costs relating to the period between the debt maturity and the effective payment of the amounts by the Federal Government.
Pandemic
The main reason for the drop in the value of guarantees honored by the Union in 2021 was the end of the most acute phase of the covid-19 pandemic. By 2020, the Union had covered debts of 14 states and eight municipalities affected by the loss of revenue caused by the restriction of economic activities at the beginning of the covid-19 pandemic.
That year, Congress passed a bailout package for local governments, but the law was only passed in late May 2020. This caused the National Treasury to honor local government guarantees for most of the first half of the year before last, increasing the number of states and municipalities with debts covered by the federal government. As the situation did not repeat itself in 2021, the number of states and municipalities with honorable guarantees dropped.
court decisions
In recent years, decisions by the Federal Supreme Court (STF) have prevented the execution of counter-guarantees of several states in financial difficulty. With the adhesion of the state of Rio de Janeiro to the Tax Recovery Regime (RRF), at the end of 2017, the state was able to contract new credit operations guaranteed by the Union, even in default. Some counter-guarantees in Minas Gerais are also not being executed because of injunctions granted by the STF.
In May of last year, the STF authorized the government of Goiás to join the fiscal recovery package in exchange for adopting a state spending ceiling. About two weeks ago, Goias signed the adhesion to the RRF, which allows the suspension of payment of debts with the Union in exchange for a spending adjustment plan.
At the beginning of the covid-19 pandemic, the STF granted an injunction to suspend the execution of guarantees in several states. At the end of 2020, Minister Luiz Fux, of the STF, granted an injunction maintaining the Rio de Janeiro in the tax recovery regime.
