Underfunding Concerns in Brazil’s Crop Plan Farm Credit Program

Brazil’s federal budget for farm credit subsidies under the Crop Plan is underestimated by R$2.2 billion, primarily due to rising interest rates. The current budget of R$14.1 billion may actually need to reach R$25 billion. Furthermore, only 65% of last year’s subsidy funds were utilized, raising potential funding concerns for the coming year. The government has also authorized emergency credit to restart loan programs, adding to the fiscal complexity.

A recent technical report by economist Warren Rena has revealed that Brazil’s federal budget proposal for interest rate subsidies under the Crop Plan is underestimated by at least R$2.2 billion. This discrepancy arises from escalating interest rates, which are anticipated to inflate government subsidy expenditures beyond original forecasts.

Currently, the proposed budget allocates R$14.1 billion for these subsidies, but if the difference between the projected and actual Selic rate is taken into account, actual expenses could skyrocket to approximately R$25 billion. This situation suggests that an additional R$10.9 billion may be necessary to cover the shortfall in funding.

Data from last year indicate that only 65% of the projected subsidy funds were dispensed, translating to a possible R$16.3 billion in costs for this year. This amount exceeds the current allocation by R$2.2 billion, highlighting a potential funding crisis.

Moreover, the report’s calculations do not include nearly R$4.2 billion in emergency credit authorized under Provisional Presidential Decree 1289/2025 designed to reactivate subsidized loans for the 2024/25 Crop Plan. These loans had faced suspension, prompting the urgent need for funding.

The report’s authors—Chief Economist Felipe Salto alongside analysts Josué Pellegrini and Gabriel Garrote—evaluate whether the provisional measure is simply a stopgap to avert disruptions caused by interest rate hikes and bureaucratic delays, or indicative of an anticipated increase in subsidy costs for the fiscal year.

They caution that if the government is indeed forecasting a larger subsidy expense, this adjustment would create pressure on other areas of government spending, necessitating either expenditure cuts, increased revenue, or an exacerbation of the primary fiscal balance.

“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,” stated Mr. Salto. He emphasized the necessity of adhering to fiscal discipline, especially in light of prevailing market skepticism regarding the government’s economic strategy.

The report further highlights that extraordinary credit is not constrained by the fiscal framework’s spending cap but is incorporated into the primary fiscal result calculation. The only fiscally prudent measure to counterbalance these extra expenditures would involve the cancellation of other primary fiscal outlays.

In summary, Brazil’s federal budget for the Crop Plan is significantly underestimated, with potential funding shortfalls reaching billions due to rising interest rates. The technical report by Warren Rena emphasizes the need for careful fiscal management to avoid broader economic repercussions. Policymakers are urged to ensure that any additional expenditures do not compromise the government’s commitment to fiscal discipline and stability.

Original Source: valorinternational.globo.com