A report by Warren Rena warns that Brazil’s farm credit program is underfunded by at least R$2.2 billion due to rising interest rates. Current budget allocations of R$14.1 billion could require an additional R$10.9 billion as expenses may reach R$25 billion. The report emphasizes the need for fiscal management amidst concerns regarding future subsidy expenses.
A recent report by Warren Rena has highlighted significant underfunding in Brazil’s farm credit program, particularly concerning interest rate subsidies under the Crop Plan. The report indicates that the federal budget proposal for these subsidies is underestimated by at least R$2.2 billion, primarily due to the anticipated rise in interest rates, which will consequently increase government subsidy expenses. Currently, Congress is reviewing a budget plan that allocates R$14.1 billion for subsidies, yet true expenses could escalate to R$25 billion if the difference in expected interest rates is factored in, necessitating an additional R$10.9 billion.
Last year, only 65% of budgeted subsidy funds disbursed, which could result in total expenditures reaching R$16.3 billion this year—R$2.2 billion over the current budget allocation. The figures drawn in the report do not include nearly R$4.2 billion in emergency credit recently authorized by the government through Provisional Presidential Decree 1289/2025, aimed at restarting subsidized loans for the 2024/25 Crop Plan, which had faced suspension.
The report, authored by Chief Economist Felipe Salto along with analysts Josué Pellegrini and Gabriel Garrote, raises concerns about whether the provisional measure is solely intended to avert disruptions in loan disbursements amid rising interest rates and delays in budget approval, or if it signals a greater subsidy expense than initially planned. If the latter is true, it could lead to increased pressure on overall government spending differentials, demanding adjustments through spending cuts, enhanced revenue, or a deterioration in the primary fiscal balance.
Mr. Salto noted, “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,” emphasizing the necessity to maintain the government’s fiscal integrity as per Finance Minister Fernando Haddad’s intentions. The report further cautions that the credible management of fiscal matters is essential, especially given prevailing market skepticism regarding the government’s economic strategy.
In summary, the Warren Rena report underscores a critical gap in funding for Brazil’s farm credit program, as rising interest rates threaten to exacerbate subsidy expenses beyond current allocations. With a substantial portion of last year’s budget remaining unspent, and the potential for additional extraordinary credits, the government must act judiciously to uphold fiscal balance and avoid new financial challenges. Effective management and potential expenditure cuts will be integral to maintaining the integrity of the nation’s fiscal strategy.
Original Source: valorinternational.globo.com
