Proceeds will be used for debt refinancing, sustainability projects, and general corporate purposes
01/30/2025
ESG company Ambipar raised $400 million through a debt issuance in international markets, with demand for its green-labeled bonds exceeding twice the issued volume, reaching $850 million. The waste management company priced the eight-year bonds at 10.87%, slightly below the initial guidance of 11%, according to sources familiar with the transaction.
This is Ambipar’s second bond issuance in international markets. In January 2024, the company raised $750 million, surpassing its initial $500 million target amid strong investor demand. That issuance had a seven-year maturity and was priced at 9.87%, below the initial guidance of 10%.
Ambipar drew less demand compared to other Brazilian companies that recently entered the market. Usiminas and JBS, both frequent issuers, saw investor interest surpass their bond offerings by more than four times.
An investment banker, speaking on condition of anonymity, said Ambipar’s issuance faced challenges compared to other January offerings, attributing this to the company’s credit profile and lower market recognition rather than a shift in investor appetite.
Another person familiar with the matter noted that Ambipar operates in a niche sector with no direct international peers, making it harder for investors to assess its credit profile. However, the company still managed to extend the bond maturity and attract large investors focused on sustainable assets.
Market strategy
Ambipar initially marketed the bonds with a target issuance between $400 million and $500 million (a benchmark-sized offering). The company plans to use the proceeds to repay debt maturing in 2031, refinance other obligations, and fund general corporate purposes. An equivalent amount will also be allocated to sustainability projects.
In a statement, Chief Financial Officer João Arruda said the bond issuance would help Ambipar roll over short-term debt.
“We are very pleased with the outcome of the transaction. The issuance attracted high-quality investors who believe in Ambipar’s future and support our environmental agenda,” he said.
“The bond market offers an eight-year maturity, which is not available in the local market. As a prudent measure, we will use this issuance to refinance Ambipar’s debt due between 2025 and 2028, as well as part of the green notes maturing in 2031. This gives us a solid timeframe to execute our growth, profitability, and efficiency plans, increasing our cash generation and improving our credit profile over time,” Mr. Arruda added.
Fitch Ratings assigned the issuance a BB- rating, citing Ambipar’s strong position in the environmental services sector, growth potential, and geographically diversified revenue streams. However, analysts noted that the company’s high leverage and significant cash flow consumption for interest payments constrained its rating.
Ambipar joins JBS, Bradesco, and Usiminas, which also raised funds in the international bond market in January. JBS issued $1.75 billion, Bradesco secured $750 million, and Usiminas raised $500 million.
Investment banks had anticipated a stronger bond issuance season, but rising volatility in both domestic and international markets led some companies to postpone fundraising plans. The current issuance window is expected to remain open until the second week of February, when companies begin releasing fourth-quarter 2024 earnings results.
Ambipar’s issuance was jointly led by Bank of America, Bradesco BBI, and UBS BB, with settlement scheduled for February 5.
Company holds 70% of the business, valued between R$1bn and R$1.2bn; asset attracts major players in the electric sector
01/30/2025
Neoenergia is in advanced talks to sell its 70% stake in the Baixo Iguaçu Hydroelectric Plant in Paraná, Valor learned from four market sources. The asset’s valuation ranges between R$1 billion and R$1.2 billion. Copel holds the remaining 30% of the plant and does not plan to exit the company.
Potential buyers include French EDF, Brazilian Casa dos Ventos, Chinese Spic, and Czech EnergoPro, according to sources familiar with the matter.
If the sale is completed, the new owner will take over a project capable of supplying electricity to about one million people. The asset’s concession expires in 2049. Located in the final stretch of the Iguaçu River, between the municipalities of Capanema and Capitão Leônidas Marques in southwestern Paraná, the plant began operations in 2019 after receiving an investment of R$2.3 billion.
Sources indicate that the asset’s divestment process is in its final stages, narrowing down between EDF and EnergoPro. The sale of the plant is part of Neoenergia’s strategy of asset rotation to optimize and enhance its portfolio—conducting swaps and divestments for this purpose.
At the end of 2022, Neoenergia announced an asset swap with Eletrobras, valued at R$787.8 million, without cash transfer. In 2023, it completed the sale of 50% of a transmission platform to Warrington Investment.
Another reason is the company, controlled by the Spanish group Iberdrola, is also striving to reduce its leverage, with a net debt-to-Ebitda ratio at 3.43 times, according to third-quarter 2024 data. The previous year’s same period showed a ratio of 3.11 times, according to Valor Data. Currently, the net debt stands at R$50.6 billion.
The plant was auctioned to Neoenergia, with which Copel began negotiations in 2011. The project operates on a run-of-the-river model, using the natural river flow for power generation without requiring large reservoirs. This technology reduces environmental impacts by preserving the river’s natural dynamics and minimizing flooding, although it makes the plant more susceptible to water level fluctuations, potentially affecting output during droughts.
EDF is aiming to expand its presence in Brazil, already operating in transmission and wind, solar, hydro, and thermal power generation. In April 2024, the company participated in the contest for control of Empresa Metropolitana de Águas e Energia (Emae) but was outbid by the Phoenix Fund, owned by investor Nelson Tanure, who won with an offer of R$1.04 billion. Recently, EDF also acquired a solar energy park from Volga Energia.
EDF is France’s largest energy producer and returned to French state control in 2023 after nearly 18 years in the stock market. Its shares were delisted from the Paris Stock Exchange, and the nationalization cost the French government €9.7 billion.
The Czech company Energo-Pro is expanding its presence in the Brazilian market and seeking new opportunities in the hydroelectric sector. At the end of November 2024, the company acquired seven small hydroelectric plants (PCHs) from the Canadian manager Brookfield, totaling 90 MW of installed capacity. This move signals the company’s interest in strengthening its presence in the country, expanding its renewable generation portfolio.
Since acquiring Pacific Hydro, Spic has significantly expanded its presence in Brazil’s electric sector. The company controls the Millennium and Vale dos Ventos wind farms in Paraíba and acquired the São Simão Hydroelectric Plant for R$7.18 billion in 2017. In 2020, it expanded its investments in the thermal segment by acquiring stakes in GNA I and GNA II projects, while integrating future GNA III and GNA IV projects. The Chinese government-controlled company also reinforced its renewable generation presence by taking control of Canadian solar plants and announced the construction of a new wind farm in Rio Grande do Norte.
Casa dos Ventos, a wind energy producer owned by the Araripe family with French group TotalEnergies as a minority investor, also seeks to diversify its portfolio. Within its growth plan for renewable energy supply, the company is also targeting solar sources.
Neoenergia, Casa dos Ventos, and EDF did not comment when approached. Spic declined to comment on mergers and acquisitions. EnergoPro did not return requests for comment.
Environmental hurdles have been the main challenge for implementing new hydroelectric potentials, especially in the Amazon region. This scenario helps explain the growing interest from both national and international investors in acquiring operational assets.
Portuguese EDP resumed the sale process of the Santo Antônio do Jari (392.95 megawatts) and Cachoeira Caldeirão (219 MW) hydroelectric plants in Amapá. Âmbar Energia, a company controlled by holding J&F, purchased four Cemig hydroelectric plants in a late 2024 auction for R$52 million.
In January, Gerdau announced the purchase of two Small Hydroelectric Plants (PCHs), Garganta de Jararaca and Paranatinga II, in Mato Grosso, for R$440 million.
Over the past decade, with substantial changes in the energy mix, considering the significant increase in the share of sources that do not generate energy continuously, such as wind and solar photovoltaic, hydropower’s role has become crucial.
Marisete Pereira, president of Abrage, an association representing hydroelectric generation companies, explains that hydroelectric plants play an essential role in the reliability of Brazil’s electrical system, providing services such as power, flexibility, and other services, along with a centennial lifespan.
The electric sector estimates that 11 GW of power could still be added to the system through modernization and repowering of plants. This is equivalent to the capacity of the Belo Monte plant.
With the Capacity Reserve Auction (energy security) expected to occur in mid-2025, the expectation is that contracted plants will act as capacity reserves, adjusting generation according to demand and filling gaps left by intermittent sources.
*By Mônica Scaramuzzo e Robson Rodrigues — São Paulo
Administrative rule likely to update corporate revenue thresholds
01/30/2025
Brazil’s Ministry of Finance and Ministry of Justice and Public Security are expected to update soon the revenue thresholds that require companies to notify the antitrust watchdog named Administrative Council for Economic Defense (CADE) of mergers and acquisitions. Under Brazil’s antitrust legislation, companies are currently required to report deals if the parties involved posted revenues of at least R$750 million (one of the parties) and R$75 million (the other party) in the previous year. According to people familiar with the discussions, these thresholds will likely increase to R$1 billion and R$200 million—or maybe more.
According to sources, the update would be implemented through an administrative rule by both ministries and is primarily aimed at easing the workload of CADE’s General Superintendence—the division overseeing the initial review of mergers and acquisitions. That would allow more personnel to focus on regulating and overseeing big tech companies from a competition perspective, as part of a government proposal currently being drafted by the ministries to be sent to Congress soon.
According to government sources, this update could reduce the number of mergers requiring notification to the antitrust watchdog by about one-third, lowering the caseload.
The antitrust legislation (Law No. 12,529), enacted in 2011, originally set the revenue thresholds for mandatory notification at R$400 million for one party and R$30 million for the other. In 2012, the ministries of Finance and Justice raised these figures to the current R$750 million and R$75 million, respectively. Since then, no further adjustments have been made, despite inflation during the period.
Experts argue that the outdated figures have led to record-high caseloads at CADE, straining its lean staff. Additionally, companies have long called for an adjustment in the required threshold, as exemption from mandatory notifications would reduce legal costs.
In 2024, CADE data showed that 712 deals were reported, nearly 20% more than the previous year. In recent years, the antitrust regulator has sought ways to expedite reviews, including through artificial intelligence. The average processing time for standard cases dropped from 117 days in 2023 to 93.9 days last year.
A 2023 study by the Antitrust Research Group and the Center for Economic Freedom at Mackenzie Presbyterian University found that, based on the General Market Price Index (IGP-M), the revenue thresholds should be raised to R$1.7 billion and R$170 million.
According to Vicente Bagnoli, an antitrust law professor at Mackenzie and one of the study’s authors, the research concluded that most merger cases submitted to the regulator appear unnecessary. He noted that many deals are reported only due to outdated revenue thresholds rather than for posing a real risk of market concentration.
“Outdated thresholds contradict the spirit of the law,” Mr. Bagnoli said. He argued that adjusting the figures would allow the antitrust regulator to “optimize its resources, dedicating more time and personnel to expediting investigations into anticompetitive practices, such as cartelization and abuse of dominant position.”
Paola Pugliese, a partner at Lefosse Advogados and chair of the Competition Commission at the International Chamber of Commerce (ICC), said the update is widely welcomed by the market. “Because the current criteria have been in place since 2012 with no inflation adjustment, they now capture many more cases than when first established,” she noted.
Within CADE, opinions on the matter are divided. In early 2024, CADE President Alexandre Cordeiro suggested in an interview with Valor that other notification criteria should be modified instead of simply increasing the revenue thresholds.
“The push to update these figures seems driven by a desire to avoid notifications. Shouldn’t the goal be the opposite? Analyzing more cases would build a more comprehensive database and provide deeper insights into market dynamics. Is the antitrust regulator willing to forgo access to more data?” Mr. Cordeiro questioned at the time. “A key discussion point is whether we need to refine the criteria—perhaps using deal value alongside revenue thresholds.”
Some experts opposing the update warn that it could enable large corporations to acquire regional companies and expand their market power without the antitrust watchdog’s scrutiny.
“It’s questionable whether the update would weaken enforcement,” Ms. Pugliese countered. “Statistically, the vast majority of cases have low competitive significance.” She added that deals with a real impact on competition are unlikely to go unnoticed by CADE, which retains the legal authority to require notification even when a deal falls below the established thresholds.
Eric Hadmann Jasper, a partner at HD Advogados and an expert in antitrust legislation, echoed this view. “Updating the revenue thresholds makes a lot of sense,” he said. “It would be a simple way to free up internal resources for investigating unilateral conduct, particularly in digital markets, which are complex.”
Mr. Jasper emphasized that the antitrust regulator would still have mechanisms to detect problematic mergers, as competitors can file complaints with the agency. “It just requires vigilance, monitoring, and educational campaigns,” he noted.
CADE, the Ministry of Finance, and the Ministry of Justice and Public Security did not respond to requests for comment.
State Climate Change Yearbook reveals emission levels per million reais produced in each Brazilian state
01/29/2025
The more diversified the economy of Brazilian states and the more it leans towards services and industries, the more stable and lower the carbon intensity of the state’s Gross Domestic Product (GDP) becomes over the years. This is the key finding of the first State Climate Change Yearbook.
Developed by the Centro Brasil no Clima (CBC) and the Instituto Clima e Sociedade (iCS), with support from Itaúsa, the study compiles data on emissions, climate risks, and mitigation and adaptation policies and actions across various sectors of the economy in Brazil’s 27 federative units. From 2025 onwards, the publication will be updated annually.
In 2022, the six federative entities emitting the most carbon per million reais generated had economies based on agriculture and cattle management: Acre, Rondônia, Mato Grosso, Pará, Maranhão, and Tocantins. Not surprisingly, these are located in the Legal Amazon, where the highest emissions stem from deforestation and agriculture. Amazonas, also part of this geopolitical zone, ranked ninth in 2022. The exceptions are Roraima and Amapá, which appear at the bottom of the ranking.
These states aren’t necessarily the country’s main emitters, as the carbon intensity of GDP considers the ratio between each federative entity’s net annual carbon dioxide emissions (tCO2e) and its respective GDP.
This is the case for Acre, which, despite having a median level of emissions compared to others, leads the ranking due to its small GDP. Meanwhile, São Paulo and Rio de Janeiro, with high and intermediate emissions respectively, ranked among the lowest carbon intensity rates of GDP in 2022 (24th and 23rd positions), due to their large GDPs.
“When we analyze different states, we see that their economic matrix lead to vastly different carbon intensities and distinct land-use change requirements,” said Walter De Simoni, climate policy, institutions, and law manager at the iCS.
The emissions landscape across Brazilian states helps explain the country’s overall pattern—placing Brazil among the world’s top ten greenhouse gas (GHG) emitters. The majority of the country’s emissions (about 75%) stem from land-use changes and agriculture.
Guilherme Syrkis, executive director of CBC, adds that Brazil’s diverse regions have varying sources of emissions. “Poorer states tend to have higher emissions from deforestation and agriculture, whereas wealthier states see greater emissions from transportation, industry, and energy production,” he noted.
According to Fernanda Westin, a senior researcher and consultant at CBC, deforestation fluctuations from year to year significantly impact the carbon intensity of GDP in states heavily reliant on land use. Roraima exemplifies this trend, dropping from sixth place in 2021 to second-to-last in 2022.
Ms. Westin also pointed out that negative emissions can be achieved through carbon offsetting, “Carbon removals occur when forests are planted, and high-yield agriculture and pastures absorb CO₂ as vegetation grows,” she said.
The annual report further indicates that there is no direct correlation between a state’s net carbon emissions and the size of its GDP. For example, Mato Grosso leads the nation in emissions but ranks only 11th in GDP, according to the 2022 data presented in the report.
William Wills, CBC’s project director, emphasizes that the report is not meant to compare states—each with unique characteristics, histories, and future projections—but rather to highlight public policies being implemented so that civil society can monitor and advocate for change. “This helps push for a leveling-up process so that all states build the capacity to tackle climate change,” he says.
The goal, Mr. Syrkis adds, is to institutionalize best practices and demonstrate that states attracting the most green investments have structured climate and environmental policies. Seven Brazilian states currently have dedicated climate funds in operation or development: Espírito Santo, Mato Grosso do Sul, Amazonas, Rondônia, Santa Catarina, São Paulo, and Tocantins.
“Espírito Santo and Mato Grosso do Sul have stood out with promising policies and are becoming favorites of institutions like the Inter-American Development Bank (IDB), the World Bank, the European Bank, and Brazil’s BNDES. These banks follow a checklist, reviewing the entire multi-year planning process, including climate policies,” said Mr. Syrkis.
Brazil establishes humanitarian assistance post for deported citizens, seeks working group with Washington
01/29/2025
The Brazilian government has decided to set up a humanitarian assistance post for Brazilians deported from the United States. Additionally, it plans to propose the formation of a working group with the U.S. government to address issues related to deportations.
These were the two main solutions presented to President Luiz Inácio Lula da Silva during a meeting held on Tuesday (28) at the Planalto Palace. The meeting was convened following reports of mistreatment of Brazilians during a problematic flight that made an unscheduled landing in Manaus last Friday (24).
Brazil’s strategy is not to confront the U.S. government or challenge the mass deportation policy implemented by President Donald Trump. According to Foreign Minister Mauro Vieira, the goal is to ensure that Brazilians are brought back to the country safely, with respect for human rights and in accordance with bilateral agreements on the matter.
The chosen method to engage with the Americans is diplomacy, conducted directly from Brasília. The Brazilian embassy in Washington, still attempting to establish initial contacts with senior U.S. officials, will be sidelined to avoid friction with the Trump administration.
As such, Foreign Minister Mauro Vieira and his team will lead the proposal with the Americans to create a working group. The minister met on Monday (27) with Gabriel Escobar, the commercial representative of the U.S. embassy in Brasília, for a preliminary discussion on the matter. The U.S. diplomatic representation, without providing details, described the meeting as a “technical meeting.”
In a press conference, referring to previous agreements with the Americans, Mr. Vieira reiterated, “On national soil, there cannot and should not be handcuffed individuals, and we will work to ensure that does not happen.”
He also stated that “there was no consideration, nor will there be, of using Brazilian Air Force (FAB) planes” to transport deportees from U.S. soil. The understanding at the Foreign Affairs Ministry is that this responsibility lies with the U.S. government, which decided to carry out mass deportations. However, the foreign minister emphasized that this should be done “in respect of the regulations.”
“We will talk with U.S. authorities to ensure that deportations are carried out in accordance with American and Brazilian laws,” said the Foreign Minister.
Regarding Operation Welcome, Human Rights Minister Macaé Evaristo reiterated during the same press conference that one of the government’s main strategies is to “ensure that families are not separated and that they travel under favorable conditions.”
The government does not yet know the costs or the necessary structure to implement this operation. However, according to Macaé, the post should include representatives from ministries such as Health, Labor, and Human Rights.
The inspiration is to replicate, on a smaller scale, Operation Welcome, established in Roraima to receive waves of Venezuelans continuing to arrive in Brazil through the border town of Pacaraima. Ms. Macaé stated that the government intends to work with businesses to secure employment for deportees. According to her, there has already been “interest expressed by companies willing to promote this.”
During the press conference, Mauro Vieira also seized the opportunity to criticize the U.S. deportation operation. In his view, the transportation of Brazilians was “tragic” and could have resulted in an aviation accident. Finally, the Foreign minister confirmed that President Lula is expected to participate virtually in the upcoming meeting of the Community of Latin American and Caribbean States (Celac), which will specifically address the crisis involving the deportation of illegal immigrants. The meeting is scheduled for Thursday afternoon (30).
Long dollar positions against the Brazilian currency in the derivatives market drop to $58.3 billion from $77.6 billion
01/29/2025
Foreign investors have reduced their bets on a stronger dollar against the Brazilian real by $19.3 billion in the derivatives market since the peak of these positions, reached in the first days of the Central Bank’s intervention in the spot market on December 16, 2024.
Several factors have contributed to this sharp reduction over the past 40 days. In addition to the monetary authority’s intervention, currency fund managers cited a more measured stance from U.S. President Donald Trump on trade tariffs, expectations of a higher Selic benchmark rate, and the lack of new fiscal developments in Brazil.
Between December 16 and the latest data released by B3 stock exchange on Monday (27), net long dollar positions fell from $77.6 billion to $58.3 billion, according to figures covering mini-dollar contracts, dollar futures, swaps, and foreign exchange coupon contracts (DDI).
A long position in the dollar reflects both current market movements and future expectations. The unwinding of futures market positions helps explain the recent depreciation of the dollar, as the Brazilian futures market has greater liquidity than the spot market. It also signals that fewer investors are willing to hold dollars for future exchange, possibly anticipating a further decline in the U.S. currency against the real or seeing limited upside potential for the dollar. Over the period of this position reduction, the exchange rate per U.S. dollar in the spot market fell from R$6.09 to R$5.91, marking a 3% depreciation of the U.S. currency against the real.
Dollar sell-off
For Ronny Kim Woo, a multi-asset manager at ARX Investimentos, the unwinding of dollar positions is closely linked to international developments.
“It’s important to look back at the last quarter of last year. In October, as betting markets increased the odds of a Trump victory, investors began positioning for a Trump trade—buying the dollar against all currencies, not just in developed markets but especially in emerging markets,” he explained.
In October, as Mr. Trump’s chances of winning the White House grew—along with expectations of a Republican majority in both houses of Congress—the exchange rate per dollar appreciated 6.14%, climbing from around R$5.44 to R$5.78. Over the same period, the DXY index, which tracks the dollar against a basket of major currencies, gained 3.1%.
“The market started pricing in the election outcome ahead of time. Around the same time, expectations for Federal Reserve rate cuts also began to shift,” Mr. Woo noted.
Domestically, a weak fiscal package announcement in late November, coupled with the government’s proposal to exempt income tax on salaries up to R$5,000, led foreign investors to increase their dollar positions against the real.
Until mid-November, after Mr. Trump’s election victory, the real had been one of the best-performing currencies against the dollar. Market participants had anticipated that the government’s fiscal package might support the Brazilian currency, prompting investors to avoid shorting the real. Additionally, there was an expectation that Mr. Trump’s policies would only indirectly affect Brazil. However, this view shifted after details of the fiscal measures emerged, leading to a sharp deterioration in the real’s performance, according to Mr. Woo of ARX.
Turning point
By mid-December, as long dollar positions began to unwind, Brazil’s Central Bank tightened monetary policy, signaling two additional 100 basis-point hikes in the Selic rate in upcoming meetings—a highly conservative stance. Around the same time, the Central Bank began intervening directly in the spot market.
“With this intervention [which drove the dollar lower], foreign investors saw an opportunity to lock in profits from the positions they had built since October,” Mr. Woo.
Hedging strategies also played a role. Investors with long dollar futures positions incur the Selic rate while earning the foreign exchange coupon rate. In December, two factors made these positions less appealing: the Central Bank raised the Selic rate and signaled further hikes, while its interventions in the spot and swap markets pushed down the foreign exchange coupon rate.
As a result, holding long dollar positions became more expensive. While these factors alone may not fully explain the unwinding of positions, traders say that, combined with profit-taking and a calmer global outlook, they became a reason for caution.
“Betting structurally against the real right now is risky and could be very costly. The widening interest rate differential [between Brazil and the U.S.] undermines this strategy over the long run,” said Rodrigo Cabraitz, a currency trader at Principal Claritas.
He expects that future bets against the real will be more tactical, with shorter stop-loss levels to limit downside risk.
“To take a long-term bearish stance against the real, we would need more negative domestic news. So far, we’ve had a quiet month with no major developments impacting the market,” he added.
Mr. Cabraitz also noted that the first quarter typically sees a seasonal inflow of dollars into Brazil due to grain exports, which could provide additional support for the real.
“This marginally positive inflow scenario, combined with the interest rate differential, discourages long dollar positions. Unless new negative news emerges, the fundamentals of the real make it harder to bet against the Brazilian currency,” he explained.
Another factor driving the shift in dollar positions is the preference for relative trades among emerging market currencies.
“If we look at the most liquid currencies in the region—the Brazilian real, Mexican peso, Chilean peso, and Colombian peso—the real stands out, ” Mr. Cabraitz said.
“With low volatility due to a lack of fresh local developments and external factors weighing more heavily on peer markets”, the real is positioned to outperform other Latin American currencies, he added.
Governors increase current expenditures by 8.7% in their first two years in office, while revenues grow just 2.1%
01/29/2025
Despite efforts to balance budgets throughout 2024, state governors are expected to end the first half of their terms with expenditures rising faster than revenues. From January to October 2024, total current revenues for the 26 states and the Federal District (Brasília) grew by 5.3% in real terms compared to the same period in 2023, while expenditures increased at a slower pace of 4.7%. However, this followed a 2023 in which spending rose by 3.9% while revenues fell by 3.1% compared to 2022.
Looking at the first half of the current administrations, from 2022 to 2024, current expenditures increased by 8.7% in real terms, whereas current revenues grew by just 2.1% over the same 10-month period.
Experts warn that expenditures rising faster than revenues is a cause for concern, as it indicates ongoing fiscal expansion that could become unsustainable if the economy slows down or enters a recession.
The data, collected by Valor from budget execution reports submitted by states to the National Treasury Secretariat, are based on actual revenues and settled expenditures. Figures for years prior to 2024 have been adjusted for inflation using the official IPCA index.
Manoel Pires, coordinator of the Fiscal Policy and Public Budget Center at the Brazilian Institute of Economics of the Getulio Vargas Foundation (FGV Ibre), noted that state spending has been growing at a rate nearly two percentage points above GDP growth over the past two years.
“And we’re talking about strong GDP growth. The states are significantly stretching their expenditures, which is concerning. Looking ahead, we have a fiscal framework and several mechanisms in place that allow this trend to continue,” Mr. Pires said.
Even from January to October 2024, when overall fiscal performance was better than in the previous year, current expenditures still outpaced revenue growth in ten states: the Federal District, Mato Grosso, Mato Grosso do Sul, Pará, Paraíba, Piauí, Rio Grande do Norte, Rondônia, Sergipe, and Tocantins.
Personnel costs
In general, personnel expenses and social obligations were the kry drivers of rising expenditures. These costs increased by 5.2% in real terms from January to October 2023 and continued to rise, albeit at a slower pace of 3.5%, over the same period in 2024. Between 2022 and 2024, real growth in personnel expenses reached 8.9%.
Felipe Salto, chief economist at Warren Investimentos, noted that the data indicate a worrying trend of revenue deceleration when comparing pre- and post-pandemic periods.
“On the other hand, there was indeed a sharp increase in investments when revenues were performing better,” he said, adding that fiscal conditions vary across states. “With economic activity slowing down in 2025, we will soon see a wave of pressure from state and municipal governments that failed to prepare for leaner times.”
State revenues
While expenditures rose, revenues fell by 3.1% in 2023, with state tax collections dropping by 6.7%. A key factor in this decline was the 2022 reform that reduced Brazil’s state-level value-added tax (ICMS) rates on key sectors such as electricity, telecommunications, and fuel. Although these changes started affecting state revenues in the second half of 2022, the full-year impact became evident in 2023.
In response, some states adjusted their tax policies, including raising the standard ICMS rate. These measures helped partially restore revenue levels.
In 2022, the restrictions on ICMS rates contributed to a 0.3% decline in state tax revenue from January to October, compared to the previous year. However, in 2021, revenues had surged by 11.6%, fueled by high inflation and commodity price spikes, creating a high comparison base that contributed to weaker results in subsequent years.
Samuel Kinoshita, São Paulo’s secretary of Finance, described 2023 as a “very challenging year.” The state implemented a program called “São Paulo na Direção Certa” (São Paulo in the Right Direction), which included institutional improvements and administrative restructuring to enhance efficiency and reduce costs. The program also involved a review of tax benefits, leading to the elimination of 88 out of 263 evaluated incentives, reducing tax exemptions by R$10.3 billion in 2025. Mr. Kinoshita did not specify the expected revenue increase. He said the main goal is not to seek revenues but to reassess the economic impact of public policy.
For the second half of the administration, Mr. Kinoshita said the goal is to expand these efforts, boosting efficiency and controlling expenditures to create room for investments.
Investment boost
State investment levels have fluctuated in recent years. In 2023, total state and Federal District investments declined by 22%, only to rebound by 11.1% in 2024. The data does not include financial inversions. However, from 2022 to 2024, investment levels fell by 13.3%.
Despite recent declines, investments remain historically high. From January to October 2024, states invested R$60.6 billion, nearly triple the R$21.5 billion in 2019 and more than double the R$25 billion in 2020, adjusted for inflation.
The surge in investments in previous years was partly fueled by extraordinary federal transfers during the COVID-19 pandemic and rising revenues. In 2022, an election year, state investments totaled R$69.86 billion between January and October—the highest level since 2019.
Federal transfers have played an increasing role in state revenues. In 2023, these transfers grew by 5.8%. That year also saw a decline in current revenues. In 2024, they increased by 6.7%, surpassing revenue growth by 1.4 percentage points. Between 2022 and 2024, transfers grew 12.9% in real terms.
Compared to the same period in 2019 (January to October), state revenue from federal transfers surged by 52.3%. As a result, the share of federal transfers in total state revenue rose from 20.6% in 2019 to 26.8% in 2024.
Mr. Pires of FGV Ibre explained that the federal government’s fiscal strategy depends on increasing tax revenues, part of which is distributed to states and municipalities. For example, the rise in income tax (IR) revenue, a key component of the federal government’s revenue-boosting measures, feeds into the State Participation Fund (FPE), which channels funds to state governments.
Sergipe projects
For Sarah Tarsila Araújo Andreozzi, finance secretary of Sergipe, a slowdown in the FPE is a key concern for 2025. The fund’s resources, she said, account for nearly half of Sergipe’s total revenue. Given this dependency, the state projects an 8% nominal increase in total revenue for 2025—a conservative estimate, she noted, considering the state’s solid performance in generating its own revenue.
In 2024, ICMS collections saw a real increase of 6.4%. Fiscal report data show that the state’s own revenue rose 7.9% in 2023 and another 4.1% in 2024 (January to October, compared to the same period the previous year). From 2022 to 2024, revenues grew 12.3% over the same months, in contrast to a 1% decline across the 27 states and the Federal District.
Ms. Andreozzi said several factors have contributed to this revenue growth, including raising the ICMS modal rate from 18% to 19% in 2023, adjustments to social welfare program Bolsa Família, which boosted consumption, and the implementation of a state tax installment program, the Refis, in 2023. She also emphasized that Sergipe has a relatively low tax base with room for growth. The current administration has stepped up efforts to combat tax evasion and encourage compliance, leveraging technology and compliance programs—tools that, she pointed out, “have long been in place in other states.”
In 2023, the first year of the current administration, the state curbed spending, contributing to a primary surplus of R$1 billion. That year, public sector wage adjustments were kept below inflation, while in 2024, there was a real adjustment, with increases for categories whose salaries had fallen behind.
Looking ahead to 2025 and 2026, the focus will be on investments, she said. In 2023, the state developed projects, and in 2024, it conducted public tenders. “Now, in 2025, we expect to see actual projects materializing and investment increasing. Without this, we cannot stimulate the economy or attract businesses. With tax reform, industries need to be drawn in with strong logistics infrastructure and a skilled workforce. We are working on both fronts.”
Fiscal expansion
Mr. Pires of FGV Ibre warned that fiscal decentralization has gained momentum in recent years and is set to continue into the next political cycle. He cited the recently enacted PROPAG law, a federal debt refinancing program for states, as a key driver of fiscal expansion.
A National Treasury technical report outlined two scenarios for the federal impact of PROPAG. In one, the program could cost the federal government R$105.9 billion between 2025 and 2029. In another, if states amortize R$162.5 billion in debt, the federal impact could be a positive R$5.5 billion over five years.
PROPAG has drawn criticism from heavily indebted states, which seek to use the National Regional Development Fund (FNDR) to repay debts to the federal government—a provision vetoed by President Lula.
Mr. Pires also pointed to upcoming structural changes, such as the tax reform that will allocate new resources to states from 2029 onward.
He noted that in an economy already growing above potential and facing inflationary pressure with high interest rates, the risk of fiscal expansion at the state level is concerning. “If we face a recession, states with rigid budgets and rising expenditures may be forced to drastically cut investments, which could increase pressure on the federal government for financial support.”
Another key factor driving expenditure growth is borrowing. “Loans secured in 2023 and 2024 could boost investments in 2025,” Mr. Pires said. “This is a significant fiscal expansion, likely with lasting effects.”
Company to acquire 979 railcars and 23 locomotives to move grains and sugar
01/27/2025
Cofco International, the Chinese agribusiness giant and one of the world’s largest agricultural trading companies, will invest R$1.2 billion in the acquisition of 979 railcars and 23 locomotives to enhance its logistics operations in Brazil. The new fleet will transport grains and sugar to the Cofco Export Terminal (TEC) at STS-11 in the Port of Santos (São Paulo), via Rumo’s railway network.
“This project aims to improve the efficiency of rail transport for grains and sugar, reducing dependence on road transportation and the associated carbon emissions. The partnership marks a significant milestone for national logistics, with the potential to substantially decrease the number of trucks on the roads, easing traffic congestion and reducing environmental impact,” said Fabrício Degani, logistics director for Cofco International’s grains and oilseeds division in Brazil.
Mr. Degani estimates the new railcars and locomotives will have the capacity to transport 4 million tonnes of grains and meal annually from the Central-West region—where Cofco operates storage facilities and crushing plants—and sugar from São Paulo’s interior, home to four Cofco-owned sugar mills, to the Port of Santos.
Transporting this volume by road would require nearly 100,000 truck trips annually. “We are focusing on more sustainable solutions to drive logistical expansion,” Mr. Degani stated. Cofco estimates that rail operations will reduce greenhouse gas emissions by 80% compared to truck transportation.
This investment adds to the company’s efforts to expand the STS-11 agricultural terminal. In 2022, Cofco secured the lease for the terminal in a public auction, committing $285 million to increase export capacity from 4.5 million tonnes to 14.5 million tonnes per year by 2026.
Deliveries of the railcars and locomotives will begin in March, with full operation of the fleet expected by the first quarter of 2026. The locomotives will be manufactured by Wabtec at its Contagem (Minas Gerais) plant, while the railcars will be produced by Greenbrier Maxion in Hortolândia (São Paulo).
The operation of Cofco’s new fleet will be managed by Rumo, which already operates a fleet of 33,000 railcars and nearly 1,000 locomotives. “This addition of capacity from Cofco aligns perfectly with Rumo’s expansion plans,” said Eudis Furtado, Rumo’s vice president of commercial operations. He highlighted Rumo’s ongoing projects, including the construction of 700 kilometers of railway in Mato Grosso, connecting the Midwest region and São Paulo to the Port of Santos. “Through this contract with Cofco, we will expand our footprint in the Port of Santos, optimize national logistics, and help reduce Brazil’s infrastructure bottlenecks,” Mr. Furtado added.
Currently, Cofco unloads over 110,000 trucks and more than 85,000 railcars annually at the Port of Santos. The company expects to handle 8 million tonnes of grains, sugar, and soybean meal at the terminal in 2025. By 2026, with the completion of the STS-11 upgrades and third-party service offerings, the terminal’s throughput is projected to reach 14.5 million tonnes, handling grains and soybean meal from the Midwest and sugar from São Paulo’s interior.
Cofco plans to export 70% to 80% of its Brazil-originated products through Santos, with the remaining volume shipped via the Northern Arc ports, in partnership with Hidrovias do Brasil. Mr. Degani noted that Cofco has plans to expand in the Northern Arc but declined to provide further details at this time.
In 2023, Cofco moved approximately 15 million tonnes of agricultural products in Brazil, a volume expected to grow with the Santos terminal in full operation. The company anticipates creating 480 direct jobs through the terminal’s construction.
Meanwhile, Rumo is also investing heavily to expand capacity via the Port of Santos, including the North-South Railway, Mato Grosso Railway, Paulista Network upgrades, and the Santos terminal. According to Mr. Furtado, Rumo has 5,000 workers engaged in the Mato Grosso railway expansion project, with investments ranging between R$3.8 billion and R$4.5 billion for its first phase, set to begin operations in 2027. Rumo operates nearly 13,000 kilometers of railway across Brazil, transporting over 20 million tonnes of soybeans, corn, and meal annually to the Port of Santos.
Impact of minimum wage also appears in the broad increase of prices linked to freelancers
01/27/2025
While the government grapples with how to control food prices, economists are increasingly concerned about the rising inflation in services and other “qualitative” measures. These indicators show trends over which the Central Bank’s monetary policy may have more influence.
The January mid-month inflation index IPCA-15 — known as a reliable predictor for official inflation — rose by 0.11%, surpassing the median expectation of a 0.02% decrease gathered by Valor Data.
One unexpected positive factor in the month was food prices. The “food and beverages” category slowed more than economists anticipated, rising 1.06% in the January IPCA-15 compared to 1.47% in the December 2024 preview. Specifically, food consumed at home decelerated to 1.1% from 1.56%.
A significant portion of this deceleration is attributed to meat prices, a topic of concern for President Lula, which increased by only 1.93% in January compared to 7.91% in the prior month’s IPCA-15. Over 12 months, however, meat prices remain heavily pressured with a 20.65% inflation rate, though they have stabilized relative to the full December 2024 Extended Consumer Price Index (IPCA).
Food consumed at home saw a one percentage point relief from the previous month, reaching 7.75% over the 12 months leading up to the January preview, while the “food and beverages” group decelerated to 7.49% from 8%. Nonetheless, these figures remain above the general index, which has increased by 4.5% and is now temporarily within the upper tolerance limit of the year’s inflation target—down from 4.71% in the December preview.
Without the “Itaipu bonus” that caused a 15.5% drop in residential electricity prices in January’s IPCA-15, the inflation preview would have been closer to 0.7%, and over 12 months, around 5%, noted Mirella Hirakawa of the consultancy Buysidebrazil. This figure would more closely resemble 2021, when inflation closed the year at 10% following the pandemic shock.
This temporary effect on energy concealed clear signs of inflation acceleration in January’s preview. More importantly, from the perspective of analysts and the Central Bank, all qualitative measures accelerated between December 2024’s IPCA-15 and January 2025’s.
Services accelerated to 0.85% from 0.64%, significantly above the market’s expectation of around 0.36%. This was a reacceleration, as they had decreased from a 0.72% rise in November. An important factor was airfare prices, which rose by more than 10% in the January preview, contrary to economists’ expectations of a decrease.
Nonetheless, core services, excluding volatile items such as airfare, accelerated to 0.96% from 0.71%. This is the highest level since May 2022 (0.98%), according to the MCM series. Over 12 months, core services increased to 5.95% from 5.66%, the highest value since June 2023, 6.53%.
A significant portion of this “qualitative” inflation has been fueled by an overheated domestic economy and the support of household disposable income, driven by factors like a tight labor market and a 7.5% increase in the minimum wage.
The impact of the minimum wage also seems evident in the widespread price increases of services linked to “freelancers,” such as dentists (1.6%), psychologists (1.2%), seamstresses (1.2%), and manicurists (2.3%).
Tatiana Pinheiro, chief economist at Galapagos Capital, believes that if monetary policy is effective, it will help control part of the exchange rate pass-through from wholesale to consumer prices and keep the 2025 IPCA at a level similar to the end of 2024. This would be a significant achievement, as the shift from an exchange rate of R$5 per dollar to R$6 is no trivial matter.
However, for this to happen, fiscal policy—which is under the government’s control—needs to cooperate. Without new actions in this area on the horizon, the perception is that, at least in terms of inflation, 2025 is starting much like 2024 ended: with concerning and worsening signals.
U.S. President opposes key government priorities like social media regulation and taxing the ultra-wealthy
01/27/2025
Donald Trump’s first week back in the White House has already signaled challenges ahead for the Planalto Palace in advancing several priorities of President Lula’s foreign policy agenda.
Key initiatives such as the Global Alliance Against Hunger, a proposal to tax the ultra-wealthy, a climate financing deal at COP30, the push for de-dollarizing international trade, and social media regulation to combat fake news face weakened prospects—or outright threats—under the Republican leader’s administration. On the other hand, Brazil may attract more investments in renewable energy, given Mr. Trump’s preference for fossil fuels.
Mr. Trump’s nationalist and protectionist stance and his alignment with far-right movements and big tech companies are expected to clash with Brazil’s goals on multiple fronts.
Social media regulation and the fight against fake news are central to Lula’s administration. Mr. Trump, however, has openly opposed any measures he perceives as “threats to free speech.”
Having appointed Elon Musk, the owner of platform X, to a government position, Mr. Trump has also enjoyed the backing of Mark Zuckerberg. In January, Mr. Zuckerberg announced the end of Meta’s content moderation policies for Facebook, Instagram, and WhatsApp. When contacted, the companies did not respond. Experts argue for holding platforms accountable for their content.
There is a perception that forcefully pursuing this agenda could draw negative attention from Mr. Trump and Mr. Musk, a scenario the Lula administration seeks to avoid. As a workaround, the government plans to support regulatory bills proposed by opposition lawmakers in Congress, such as Senator Damares Alves and Congressman Silas Câmara, to increase oversight of social media.
Members of Lula’s government see the Trump-Musk alliance as a global democratic risk. Mr. Musk has publicly supported the far-right Alternative for Germany (AfD) party in upcoming elections and was photographed with Nigel Farage, leader of Reform UK, in front of a Trump portrait at Mar-a-Lago before the inauguration.
Concerns also extend to Mr. Trump and big tech’s potential influence on Brazil’s 2026 elections. In November, First Lady Rosângela da Silva criticized Mr. Musk at a G20 pre-event in Rio de Janeiro, linking him to misinformation on social media. Her remarks quickly spread across social media. Mr. Musk responded to the video with laughing emojis on X, commenting, “They will lose the next election.”
Finance Minister Fernando Haddad’s proposal to tax the ultra-wealthy as a means to fund global inequality projects faces “zero chance” of advancing under Trump, according to a senior government source.
During his first term, Mr. Trump cut taxes for the wealthy and large corporations, arguing it spurred economic growth. His latest campaign included further tax reductions including exemptions and eliminating caps on state and local tax deductions, benefiting the wealthiest.
Brazil’s push to de-dollarize trade within BRICS has also drawn Mr. Trump’s ire. He staunchly defends the U.S. dollar’s role as the global reserve currency and opposes diversifying currencies in international transactions.
In November, Mr. Trump threatened up to 100% tariffs on BRICS products if the group pursued a common currency.
“The U.S. demands a commitment from these countries not to create a BRICS currency or support any alternatives to the mighty U.S. dollar,” Mr. Trump declared on social media.
The Global Alliance Against Hunger, a Lula-led initiative launched at the G20 to combat food insecurity in the poorest nations, could also falter.
While former President Joe Biden supported the effort, Mr. Trump’s preference for disengaging from multilateral agreements casts doubt on U.S. participation.
Similar concerns surround COP30, the global climate conference scheduled for Belém. On his first day back in office, President Trump announced the U.S. withdrawal from the Paris Agreement, echoing his first-term decision.
Brazilian officials fear this could dissuade other nations from participating in global climate initiatives and weaken negotiations at the conference.
Ambassador André Corrêa do Lago expressed concern last Tuesday (21) after being named COP30 president.
“We are still assessing President Trump’s decisions, but there is no doubt they will significantly impact our preparations and how we navigate the withdrawal of such a key player from this process,” he told reporters at the Planalto Palace.
Despite these challenges, Mr. Trump’s focus on fossil fuels could indirectly benefit Brazil. Sectors of the Brazilian economy see an opportunity to attract green investments, particularly in renewable energy, that might otherwise target the U.S.
Given these dynamics, sources in Brasília admit that the Lula administration will face difficulties in maintaining its international agenda amid tensions with Washington. A Planalto official remarked that Brazil has moved “from a government ally to the opposition” in the global context under Trump.
To mitigate the fallout, Brasília plans to adopt calibrated diplomatic strategies, preserve its leadership in social, environmental, and economic causes, and seek alliances with Europe, Africa, and Asia. These regions share values and priorities aligned with Brazil’s goals. The U.S. Embassy in Brasília did not respond to requests for comment.
