The Warren Rena report uncovers a R$2.2 billion underfunding in Brazil’s farm credit program due to rising interest rates and insufficient subsidy allocations. It anticipates potential expenditure of R$25 billion against a budget of R$14.1 billion, calling attention to the need for fiscal adjustments. The involvement of emergency credit raises questions about the government’s budgeting strategy moving forward.
A recent technical report by Warren Rena indicates that Brazil’s federal budget proposal for the interest rate subsidies under the Crop Plan is underestimated by at least R$2.2 billion. This shortfall is attributed to rising interest rates, which are anticipated to elevate the government’s subsidy expenditures significantly. Currently, the budget allocates R$14.1 billion, yet real expenses could escalate to R$25 billion if the projected Selic rate is taken into account, necessitating an additional R$10.9 billion.
In previous years, only 65% of the budgeted subsidy funds were disbursed; if this trend continues, expenditures may reach R$16.3 billion, surpassing the current allocation by R$2.2 billion. The analysis is based solely on the proposed budget and does not factor in R$4.2 billion in emergency credit authorized recently. This funding was granted via Provisional Presidential Decree 1289/2025 to resume suspended subsidized loans for the 2024/25 Crop Plan.
The report’s authors, Chief Economist Felipe Salto alongside analysts Josué Pellegrini and Gabriel Garrote, speculate whether the provisional measure aims to avert disruptions in loan disbursements due to rising interest rates and the delayed budget approval. They caution that if the government intends to increase subsidy expenses, it may require budget recalibration, which would put pressure on other government expenditures.
Mr. Salto remarked, “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.” He emphasized that maintaining fiscal balance is essential, especially due to market skepticism regarding the government’s economic strategy, underscoring the importance of ensuring that the Crop Plan does not become a fiscal burden.
Though the extraordinary credit is exempt from the spending cap of the fiscal framework, it influences the calculation of the primary fiscal result—which assesses revenues against expenses, excluding interest payments. The report concludes that a fiscally responsible approach to offsetting this additional expenditure would necessitate the cancellation of other primary expenses.
In summary, the report by Warren Rena highlights significant underfunding in Brazil’s farm credit program, with a projected R$2.2 billion shortfall due to rising interest rates. The findings raise concerns about the sustainability of subsidy programs without reallocating other budgetary funds. Clarity on the government’s fiscal intent remains crucial to maintaining economic stability as the budget is reviewed in Congress.
Original Source: valorinternational.globo.com
