Rio’s fiscal recovery plan has a positive opinion from the Treasury

After undergoing review, the fiscal recovery plan for the state of Rio de Janeiro received, with reservations, a favorable opinion from the National Treasury this Friday (25th).

In a publication on social networks, Governor Cláudio Castro (PL) indicated that points of divergence related to the document were equated. Now, the state government awaits a manifestation of the PGFN (Prosecutor General of the National Treasury) on the subject, said the governor.

“Rio’s fiscal recovery plan received a positive opinion from the National Treasury, reaffirming the positive balance of my meeting with Minister Paulo Guedes,” Castro wrote.

“The financial and economic points were equated. The Government of RJ awaits an official manifestation of the PGFN in the coming days”, he added.

Rio’s entry into the RRF (Tax Recovery Regime) became a source of impasse at the beginning of this year. In January, the Treasury and the PGFN expressed their rejection of the initial plan of the Rio de Janeiro government, which in practice would make it impossible to adhere to the federal bailout.

At the time, the RRF Supervisory Board, made up of representatives from the Treasury, the TCU (Union Court of Auditors) and the state, had voted for approval with reservations.

But, with the two opposing opinions, the Ministry of Economy would not be able to accept Rio’s entry into the program.

At the time, the Treasury criticized the initial plan for providing for salary increases in all years of the recovery regime.

In a note released this Friday, the STN (Secretariat of the National Treasury) pointed out that, after the review, the automatic adjustments were withdrawn from 2023, which weighed on the new assessment of the body.

In the secretary’s view, the updated plan “has the potential to balance the state’s finances.” However, the agency cites two caveats.

According to the STN, the plan will need to be revised to include new adjustment measures if there are significant deviations from the expected revenue or expenditure paths during its implementation.

“By the PRF [plano de recuperação fiscal]the balance of accounts occurs in the last year of validity of the Tax Recovery Regime (RRF), resulting from a considerable decrease in investments”, he says.

“It should also be noted that the plan is based both on a small margin of safety of the projections, capable only of absorbing small negative deviations from macroeconomic variables, and on the absence of monetary correction of wages after 2023”, he adds.

The agency also states that the state’s cash flow during the term of the regime will depend on the success of the securitization strategy of local active debt and the increase in revenue from ICMS. [Imposto sobre Circulação de Mercadorias e Serviços]royalties and special participations resulting from greater oversight of companies in the oil sector.

The STN considers that the process of joining Rio to the RRF is not yet finalized. The document also needs the assessment of the PGFN and the RRF Supervisory Board.

“If the opinions are favourable, it will be up to the Minister of State for the Economy to approve the plan and forward it to the President of the Republic, who is responsible for approving the PRF”, he adds.

On the 9th, after meeting with Guedes, Castro said that most of the differences with the Ministry of Economy had been resolved and that only a few points would remain under discussion.

“After a lot of negotiation, a lot of conversation, the state of Rio gave up some points, and the Ministry of Economy understood some other points”, he said at the time.

One of the main divergences concerned the prediction of salary readjustments for servers. According to the governor, the increases were not banned in the new version, but Rio would have to re-discuss annually with the federal government the possibility of raising salaries.

The RRF is a program designed for states with cash difficulties, because it offers immediate relief in the payment of debt with the Union and other creditors. On the other hand, these federation units have to adhere to fiscal adjustment measures.

State governments need to commit, for example, to carrying out concessions, privatizations and other measures to improve collections and reduce expenditures. At the same time, they have to respect prohibitions on the creation of new positions, increases and increases in expenses.

The regime was created in 2017, and Rio was the only participant in the first phase of the initiative. The program underwent changes in Congress, sanctioned by President Jair Bolsonaro (PL). Now, the state is seeking new membership.

Castro, who took over the government after the removal of Wilson Witzel (PSC), intends to run for re-election in 2022. After the setback in January, the governor said that barring entry into the tax recovery regime would be “evil” to Rio.

“Taking Rio de Janeiro out of the regime at this moment, in addition to being evil, does not match what is being done here. It does not match all the recovery work that is being done”, he said on January 17.