IMF国际货币组织全球-Brazil_Technical-Assistance-Report_56页_1mb

Summary of the Technical Assistance Report: Strengthening the Framework for Subnational Borrowing in Brazil

Core Content

This Technical Assistance Report (TAR) provides an analysis of Brazil's subnational fiscal framework and proposes reforms to enhance fiscal responsibility, transparency, and sustainability. The report was prepared by the IMF staff team in July 2019, in response to a request from the Ministry of Economy. It outlines the current state of subnational finances, the challenges posed by the existing borrowing framework, and a set of recommendations aimed at strengthening the system.

Main Points

1. High Degree of Fiscal Decentralization

• Brazil has a high degree of fiscal decentralization, with subnational governments (states and municipalities) responsible for a significant portion of public spending.
• Subnational governments have considerable revenue autonomy, with nearly half of their revenue coming from taxes, which is higher than the OECD average but similar to other federations like Canada, Germany, and the United States.
• The 1988 Constitution expanded subnational spending mandates and reinvigorated their role, contributing to a rise in the tax burden and the share of revenue for subnational entities.
• Intergovernmental transfers are formula-based and primarily aimed at compensating for horizontal imbalances (differences in revenue and expenditure across states).
• The share of transfers in total revenue varies significantly by region, with states in the Northeast and North regions relying more heavily on federal transfers (41% and 51%, respectively) compared to other regions.

2. Subnational Debt

• Subnational debt has been a persistent issue, with a notable wave of bailouts in the 1980s–90s and again in the 2010s.
• The combined amount of debt refinanced through major bailouts in 1989–2001 was estimated at about 11% of 2017 GDP.
• Subnational debt is heavily concentrated in the Southeast region, with two-thirds of state debt held by Minas Gerais, Rio de Janeiro, and São Paulo.
• These states have debt levels exceeding 200% of the net revenue limit set by the Fiscal Responsibility Law (FRL), with Rio de Janeiro at 288%.
• The current framework has not been effective in curbing debt accumulation, as evidenced by the increase in subnational debt by 0.5% of GDP per year from 2014–2018, despite a debt relief in 2014.

3. Current Borrowing Framework

• The framework combines credit restrictions, federal guarantees, and fiscal rules to instill fiscal discipline.
• States are not allowed to issue bonds but can borrow from banks.
• Federal guarantees allow subnational governments to borrow at rates similar to those of the federal government, based on a grading system that considers the state's ability to pay.
• The Fiscal Responsibility Law (FRL) sets limits on debt, debt issuance, and personnel expenditure, with violations leading to restrictions on borrowing and access to federal transfers.
• A Fiscal Recovery Regime (FRR) was introduced in 2017 to provide financial support to states in fiscal distress, including debt restructuring and new federal transfers.
• However, the framework is showing signs of weakness, with fiscal rules being undermined by judicial decisions and poor enforcement.

Key Recommendations

1. Reforming the Subnational Borrowing Framework

• Reduce Federal Guarantees and Public Bank Lending: Federal guarantees and public bank lending should be restricted to exceptional cases or eliminated to reduce moral hazard and the expectation of bailouts.
• Promote Access to Private Funding: Subnational governments should be allowed more flexibility to access private funding, which would increase transparency and market discipline.
• Improve the Fiscal Recovery Regime (FRR): The FRR should be strengthened by:
  • Designing adjustment plans to reduce debt to prudential levels.
  • Phasing in debt relief in tranches, conditional on performance under the adjustment plan.
  • Clarifying the treatment of all creditors, not just the federal government.
• Consider a Debt Fund for States: Introducing a debt fund could promote risk sharing and more credible fiscal adjustment programs.
• Introduce an Insolvency Regime for Municipalities: A legal framework for municipal insolvency could help manage local debt risks.

2. Enhancing Fiscal Responsibility and Transparency

• Create an Independent Fiscal Council (IFC): An IFC should be established to monitor fiscal performance and compliance with fiscal rules, enhancing accountability.
• Strengthen Fiscal Rules: Adopt more stringent fiscal rules, such as:
  • A spending rule to constrain and stabilize total expenditure growth.
  • Lowering debt limits to more prudent levels.
• Establish a Fiscal Management Council (FMC): The FMC should promote common accounting standards across all levels of government.
• Accelerate Implementation of the Matriz de Saldos Contábeis: This accounting system should be implemented to improve data collection and sharing.
• Strengthen Public Financial Management (PFM): PFM systems at the subnational level should be improved, especially to ensure transparency in the treatment of existing expenditure arrears and prevent new ones.

Key Challenges

• Soft Budget Constraints: The expectation that the federal government will bail out subnational governments continues to undermine fiscal discipline.
• Procyclical Fiscal Rules: Current rules based on revenue ratios encourage increased spending during periods of economic growth, leading to unsustainable debt levels.
• Weak Enforcement: Fiscal reporting and audit practices are inconsistent, and the enforcement of sanctions is limited.
• Budget Rigidities: A significant portion of subnational spending is devoted to salaries, pensions, and debt service, limiting the ability to make necessary fiscal adjustments.
• Tax Incentives and "Tax Wars": Excessive tax incentives and the competition among states for revenue have contributed to fiscal imbalances and inefficiencies.

Conclusion

The report emphasizes the need for a comprehensive reform of the subnational borrowing framework to impose hard budget constraints, enhance transparency, and promote sustainable fiscal policies. It advocates for a more market-oriented approach, with stronger fiscal rules, independent oversight, and improved PFM systems. These reforms are critical to reducing the risk of future fiscal crises and ensuring long-term fiscal stability at the subnational level.