With cash reserves strengthened and personnel expenses contained, spending grows driven by health, education

09/12/2022

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The municipalities invested a combined R$20.92 billion in the first half of 2022, a real advance of 64.8% compared to the same period in 2021. In comparison with the first half of 2018, the same period in the previous election cycle, investments grew 80.2%, showing an atypical behavior for the second year of the mayors’ mandate.

With this performance, considering also the investments made by the states, the sub-national governments were responsible for R$52.4 billion in investments from January to June this year, more than double the R$24.42 billion invested in the same period last year.

According to specialists, in the case of the municipalities, the numbers show a picture of the first half with investments driven by still restrained personnel expenses and the need to comply with constitutional minimum investments with higher absolute values for education and health.

The municipal revenues also had a favorable evolution in the first half, under the effect of the services sector, with the reopening of the economy, and by the transfers from the federal government and the states, in a reflection of cyclical factors still fattening the federal collection and sales tax ICMS collection. Specialists expect, however, that the second half of 2022 will bring a change in the scenario.

The advance in investments by municipalities was not restricted to a few. In the universe of 4,925 municipalities that submitted data to the National Treasury Secretariat (STN) for all the periods compared, 77% increased investments by more than 10% in the first half of this year compared with the same period in 2021, and 75% did so compared with the same period in 2018. Brazil has 5,570 municipalities. The sample, therefore, represents 88% of the total.

The advance in the combined investments of the municipalities was much higher than the real rise of 10.3% in current expenses compared to last year and 17.8% compared to 2018. Personnel expenses were also relatively flat, with a real increase of 3.6% compared to 2021 and 9.04% compared to 2018.

Kleber Castro — Foto: Leo Pinheiro/Valor

According to Kleber Castro, a consultant for the National Front of Mayors (FNP), there is a clear tendency to expand investments this year, although not at the same magnitude indicated from January to June. He explains that investments are not linear expenses and tend to gain steam as the fiscal year progresses, which can make the base of comparison of the first half too low.

Gabriel Leal de Barros, an economist at Ryo Asset, points out that the municipalities’ revenues, which in the first half of the year were favored both by their own collections, with the reopening of the economy and the recovery of services, and by transfers from the federal government and the states, are likely to slow down in the second half of this year. This tends to happen not only because of the expected slowdown in the economy, with effects on tax collection, with commodity price adjustments, but also as a result of ICMS reductions on regulated prices, Mr. Barros said.

Another factor that should also undergo adjustment and helped the revenues of about 900 municipalities in the first half of the year, Mr. Castro said, were the royalties and special participation from oil, which rose in line with the high prices of the commodity.

Complementary law 173/2020, which limited hiring and pay rises to civil servants, left more funds available for investments this year, Mr. Castro said. The restriction imposed by the law lasted until the end of 2021 and pay rises as of the beginning of this year can still have clearer effects on expenses in the second half or as of 2023, he said.

Cash reserves created a favorable scenario for large municipalities like São Paulo and Rio de Janeiro to put investment plans in place, Mr. Castro said.

At the top of the list in absolute values, São Paulo invested R$794.4 million between January and June, up 41.4% year-over-year in real terms. Yet, the amount is 12.9% lower than that of 2018.

Rio de Janeiro comes in second, with investments of R$485.7 million in the first half of the year, up from R$23.1 million last year and R$126.5 million in 2018.

Juliana Damasceno, an economist with Tendências Consultoria, said that the rise in investments may also have been driven by constitutional minimum spending on health and education. With the increase in revenues in 2021, part of the municipalities, says Ms. Damasceno, have not met the minimum for education and have until next year to adjust.

Besides a favorable fiscal situation in 2020 and 2021 that tends to be partly reversed at the end of this year, she said, the heating up of the economy, also influenced by fiscal stimuli, such as the early payment of the 13th salary – a mandatory year-end bonus – for retirees and pensioners and the authorization to withdraw money from Workers’ Severance Fund (FGTS) accounts, may have increased the demand for investments.

With the expected slowdown in activity in the second half of the year and next year, she said, there is uncertainty about the sustainability of this scenario, both in terms of demand and funding sources.

*By Marta Watanabe — São Paulo

Source: Valor International

https://valorinternational.globo.com/