Brazil’s farm credit program faces a serious funding shortfall of at least R$2.2 billion due to rising interest rates. The current budget allocates R$14.1 billion for subsidies but may require as much as R$25 billion when accounting for forecasted rates. Last year’s disbursement trends raise concerns for this year, prompting discussions on necessary budget adjustments to maintain fiscal stability.
A recent technical report highlights a significant underestimate in Brazil’s federal budget for farm credit programs, particularly the interest rate subsidies under the Crop Plan. According to the report by Warren Rena, the gap amounts to at least R$2.2 billion, driven primarily by rising interest rates, which are anticipated to escalate government subsidy costs.
The current budget proposal allocated R$14.1 billion for these subsidies, but with adjustments based on the forecasted average Selic rate, actual expenses could soar to R$25 billion. This discrepancy indicates that an extra R$10.9 billion may be necessary to cover the anticipated costs.
Despite the high allocation, historical execution reveals that only 65% of budgeted funds were disbursed last year; if this trend continues, this fiscal year may see expenses reaching R$16.3 billion—R$2.2 billion above the current budget.
Additionally, the analysis does not encompass the R$4.2 billion in emergency funding approved through Provisional Presidential Decree 1289/2025, which aims to resume subsidized loans suspended under the 2024/25 Crop Plan. Such measures raise questions about the government’s budgeting strategy amidst fluctuating interest rates and delayed approvals.
The authors, including Chief Economist Felipe Salto, express concerns about whether this provisional funding simply mitigates potential disruptions or suggests a larger-than-anticipated subsidy expense for the year.
Should a budget adjustment be necessary, it could present challenges as it places pressure on other government allocations, possibly requiring spending cuts or increases in revenue.
Mr. Salto warned: “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.” In light of the skepticism surrounding the government’s economic strategies, maintaining fiscal balance is pivotal to prevent further issues from arising.
Extraordinary credits are not governed by the fiscal cap but factor into the primary fiscal results, which monitor revenues against expenses. The report emphasizes that the most fiscally responsible approach to address any additional spending would involve cancelling other primary expenditures.
The federal budget proposal for Brazil’s farm credit program is significantly underestimated, potentially leading to higher-than-expected expenditures due to rising interest rates. Immediate measures may be required to offset this discrepancy to ensure fiscal balance, particularly as historical disbursement patterns could affect the actual budget execution. Ensuring that additional expenditures do not disrupt fiscal stability remains a critical concern for the Brazilian government.
Original Source: valorinternational.globo.com
