A technical report by Warren Rena indicates Brazil’s farm credit program’s budget is underestimated by at least R$2.2 billion due to rising interest rates. Current allocations may not suffice, suggesting a need for adjustments. Concerns arise over the provisional measures and potential impacts on the broader budget and fiscal balance.
A recent technical report by Warren Rena reveals that Brazil’s federal budget proposal for interest rate subsidies under the Crop Plan is underestimated by at least R$2.2 billion. This shortfall is primarily attributed to the anticipated increase in interest rates, which will raise the government’s subsidy expenses significantly. Currently, the budget under review allocates R$14.1 billion for these subsidies, but the true cost could escalate to R$25 billion when considering projected interest rates.
The study emphasizes that only 65% of last year’s budgeted subsidy funds were actually disbursed. Should this execution rate persist this year, expenditures would reach R$16.3 billion, exceeding current allocations by R$2.2 billion. Notably, the budget proposal does not account for the nearly R$4.2 billion in emergency credit authorized via Provisional Presidential Decree 1289/2025, aimed at reviving subsidized loans under the 2024/25 Crop Plan.
The authors of the report—Chief Economist Felipe Salto and analysts Josué Pellegrini and Gabriel Garrote—question the rationale behind the provisional measure. They wonder if it is a mere stopgap against rising interest rates and delayed budget approval or if it indicates an intent for elevated subsidy expenses in the year.
Should there be a recalibration of the budget due to this increase, they caution that it might strain other government spending. Any necessary adjustments could involve spending cuts, enhanced revenue generation, or an unfavorable primary fiscal balance. “The issue with Crop Plan is not a concern on its own, but the extraordinary credit authorized by Decree 1289 will need to be offset by cuts elsewhere within the spending cap,” stated Mr. Salto.
Furthermore, the report warns, “To maintain fiscal balance—especially given market skepticism about the government’s economic strategy—it is crucial that Crop Plan does not become the latest fiscal stumbling block.” Although extraordinary credit is not confined by the fiscal framework’s spending cap, it still contributes to the primary fiscal result calculations, comprising revenues minus expenses, excluding interest payments.
In conclusion, the report asserts that the only fiscally responsible approach to remedy the additional expenditure would entail the cancellation of other primary expenses. The sustainability of Brazil’s farm credit program hinges on strategic financial management to avert future fiscal obstacles.
In summary, the technical report highlights a significant underestimate in Brazil’s Crop Plan budget for subsidies. Rising interest rates and previous spending patterns indicate potential fiscal strain. The risks associated with the provisional credit measure and the need for budget adjustments could impact government expenditures more broadly. Ultimately, responsible financial management is essential to prevent the Crop Plan from becoming a fiscal burden.
Original Source: valorinternational.globo.com
