Brazilian municipalities weather crisis with good fiscal management

Most Brazilian municipalities have been severely hit by the economic crisis and went into the red, with no money for basic investment areas including education, health, and sanitation. But some other cities are responding to the crisis by keeping high standards of public account management with low reliance on federal support.

The Fiscal Management Index (IFGF), a metric created by the Federation of Rio de Janeiro Industries (FIRJAN) that looks into the finances of Brazilian municipalities based on data the local governments send to the National Treasury. In 2017, the top ten scores went to small towns including Gavião Peixoto, a municipality in São Paulo state with a population of just over 4,000, 87% literacy rate, and a Human Development Index of 0.763. The town, which was the first-ranked, is home to a final assembly plant for EMBRAER aircraft and gets constant investment for its aerospace industry. The second-ranked São Gonçalo do Amarante, located in the Northeastern state of Ceará, benefited from the Pecém industrial and port complex.

In Mato Grosso state, a hydropower dam project boosted earnings in Cláudia. In São Paulo state, Indaiatuba is an important economic center, home to large businesses.

Among the other cities covered by FIRJAN's index, a majority are small and medium-sized and live on tourism, including Balneário Camboriú and Bombinhas, in the Southern state of Santa Catarina, and São Sebastião and Ilhabela, in the São Paulo coast.

Only one big city was on the list: Niterói, Rio de Janeiro state. Overlooking Guanabara Bay, the city, which used to be the state capital, is one of its main financial and commercial centers. According to FIRJAN's survey, the key to Niterói's success was a careful fiscal management that allowed the city to keep a high investment level.

Among capital cities, the top five ranked were Manaus, Rio de Janeiro, Salvador, Fortaleza, and Boa Vista. In Manaus and Rio de Janeiro, investments played an important part in the results, with the 2016 Olympic Games boosting public projects in Rio. Campo Grande, Macapá, Goiânia, São Luís, and Maceió had the worst scores.

A total 14 capitals were rated as having “good” fiscal situations, 10 had “poor” ratings, and only Campo Grande had its fiscal situation rated as “critical”. None of the municipalities got “excellent” ratings.

FIRJAN's Fiscal Management Index is based on five aspects: ability to earn revenue without relying on state and federal transfers, the ratio of the budget that goes into payroll, cash sufficiency, investment capacity, and indebtedness. The indicator ranges from 0 to 1.

Translated by Mayra Borges