The National Treasury wants to suspend loans to states and municipalities.

247 - Due to the increase in the indebtedness of States and Municipalities, the Ministry of Finance informed in a note this Friday (14) that the Commission for External Financing (Cofiex), a body of the Ministry of Planning responsible for the operationalization of financing, was asked to remove from the agenda of last Tuesday's meeting the processes relating to new loan requests.

Loans to states and municipalities depend on guarantees from the National Treasury. "This approach reflects the current economic climate and the substantial volume of credit operations for subnational entities proposed and approved in recent years," states a note from the National Treasury.

The agency highlighted the accelerated growth in subnational debt in recent years. For states alone, annual disbursements increased from approximately R$ 9 billion in 2011 to R$ 33,5 billion last year.

The Treasury also states that changes in the macroeconomic environment and downgrades in Brazil's risk rating are forcing a reassessment of the Union's guarantee policy and the expansion of public debt by states and municipalities, which impacts the government's gross debt and the public sector's external debt.

 “The direct and indirect implications of the guarantees offered by the federal government, in particular, are being analyzed with increasing accuracy,” the statement says. This analysis should define the creation of guidelines for granting Union guarantees. “Until these assessments are completed, it has proven prudent and necessary to remove the credit operation requests from the agenda, so as not to jeopardize any future approvals,” it emphasizes.