Municipal financial (in)sustainability: the fragile methodology proposed by the Federative Pact PEC

Abstract

From the Constitution of the Federative Republic of Brazil of 1988, municipalities were promoted to the condition of Brazilian federative entities. Currently, Brazil has 1,307 small municipalities with a maximum population of 5,000 inhabitants. In 2019, the Proposal for Amendment to the Constitution nº 188 (PEC 188) entered the political and legislative scene, with one of its propositions being the extinction/incorporation of small municipalities considered unsustainable. Thus, this study aims to highlight existing weaknesses/vulnerabilities in the methodology proposed by PEC 188/2019 for measuring the Financial Sustainability of small Brazilian municipalities. The methodology proposed by the PEC was analyzed and applied to all 5,570 Brazilian municipalities, using the periods from 2015 to 2020 as a basis. The study is based on bibliographical and documentary research with descriptive and quantitative approaches. For data treatment and analysis, descriptive statistics and measures of central tendency techniques were used. The results show that, when the PEC-188 methodology is applied, Brazilian municipalities’ national average of “sustainability” is 5%, reducing to less than 3% when only small municipalities with up to 5,000 inhabitants are analyzed. Furthermore, more than 85% of Brazilian municipalities, on average, are classified as “unsustainable” based on the PEC methodology, increasing this condition to 98% if only the stratum of small municipalities is analyzed. The methodology proposed by PEC 188 has weaknesses that, if not resolved prior to a possible enactment, could lead to the extinction of approximately 1,224 small Brazilian municipalities.