In Brazil, while the so-called 'pix amendments'—federal transfers made directly to states and municipalities without detailed agreements—have drained approximately R$ 39.7 billion from the federal budget in 2024 and 2025, a more explosive fiscal risk is silently being created through international loans negotiated by governors and mayors with the backing of the Senate and federal executive. This financial maneuvering is set to have far-reaching implications for the national Treasury.

Over the past two years, Brazilian states and municipalities secured international loans totaling US$ 27.7 billion (about R$ 144.6 billion), which is more than double the amount borrowed in the previous two years (US$ 10.7 billion or R$ 55.49 billion). This increase raises concerns about the fiscal stability of these subnational entities and the potential fallout for the national government, which stands as a guarantor for these loans. If these loans are not honored, the responsibility will fall onto the Treasury, potentially leading to a significant financial crisis.

A critical risk lies in the mismatch of currencies: while states and municipalities collect revenue in Brazilian reais, they are incurring debt in US dollars. An abrupt depreciation of the Brazilian currency could trigger a crisis in the repayment of these loans, as the financial obligations would dramatically increase in reais. This scenario poses a severe challenge to fiscal management in Brazil and raises questions about the sustainability of such borrowing practices.