Rice and Beans for Brazil's States: How Pairing Fiscal Discipline with Sectoral Actions is Transforming Lives Across the Country

Development Challenge

For decades, Brazilian states and local governments faced challenges investing in jobs, infrastructure, and environmental management. Strict requirements for spending on pensions, public salaries, and debt repayment left little room for the funding that communities needed most. At the same time, states sat at the center of Brazil's most pressing environmental challenges - from Amazon deforestation in Amazonas to Cerrado degradation in Mato Grosso and Goiás, water scarcity in Sergipe, and urban mobility emissions in Rio de Janeiro. The COVID-19 pandemic deepened fiscal vulnerabilities, further squeezing the space to invest in people and the planet. Without structural reform and better liability management, subnational governments risked becoming permanent liabilities, unable to finance the very public services that communities direly needed.

World Bank Group Approach

The World Bank responded with an innovative dual-pillar approach: combine fiscal consolidation and liability management through the refinance of expensive, shorter-term existing debts with structural reforms in sectors that matter for smart development. This resulted in clean energy, sustainable agriculture, water management, green transport, land tenure, pensions, and business development. Since 2019, seventeen Development Policy Financing (DPF) programs have been prepared for Brazilian states and municipalities, spanning Mato Grosso, Amazonas, Goiás, Rio de Janeiro (municipality), Ceará, Alagoas, Sergipe, Acre, Tocantins, Bahia, Pernambuco, Piauí, Rio Grande do Sul, São Paulo, Manaus (municipality), and Fortaleza (municipality).

Watch the video: How Public Policies Transform Lives: The World Bank in Brazil

These operations were deliberately multi-sectoral to address not only fiscal sustainability issues, which are typical of DPF programs, but also reforms in public financial management and environmental matters, such as vocational training, clean energy, transportation, land regularization, pensions, social protection, and more. This approach treated fiscal and smart development as two sides of the same coin: the savings generated through fiscal discipline and lower debt costs gave states the room to invest in development action, while stronger natural resource management bolstered long-term economic resilience.

Results

• Since 2019, twelve World Bank DPF programs for Brazilian states and municipalities have helped governments to retire more expensive debts and freed up resources for job creation, climate action, and inclusive services generating $3.95 billion in fiscal savings by containing spending growth and lowering debt costs. These reforms improved the fiscal standing of a broad range of subnational governments: states such as Goiás, Mato Grosso, Pernambuco, Bahia, and Sergipe moved from lower CAPAG ratings (a National Treasury metric that assesses the fiscal health of states and municipalities (grades A-D)) to "B" or higher, while others - including Piauí, Alagoas, Amazonas, Ceará, and São Paulo - maintained or strengthened already solid positions, and the municipality of Rio de Janeiro showed consistent improvement throughout the period.
• Results for jobs, people and the planet: 720 students on track to graduate from renewable energy programs in Ceará; 580,000 hectares planted with bio-inputs and 328 low-carbon agricultural projects financed in Goiás; 360 land titles delivered to smallholder families - half targeted to women; and 250 million cubic meters of water subject to use charges in Sergipe by 2026.
• What began as a single operation in Mato Grosso state has grown into a replicable model for other subnational governments, proving that job creation, fiscal discipline and green transformation and are not trade-offs, but powerful complements.

Contribution to World Bank Group Targets and Jobs

The Brazil subnational DPF portfolio is one of the largest sustained engagements on subnational fiscal reform and climate action in the Latine America and the Caribbean Region. It is a clear demonstration that fiscal discipline and green transformation are mutually reinforcing paths to job creation. Labor market gains are most durable when underpinned by productivity growth and public investment in skills and infrastructure, and policies promoting green jobs in renewable energy, sustainable agriculture, and eco-friendly industries are essential to align economic growth with high-quality long-term employment.

The subnational DPF portfolio puts these findings into practice by generating $3.95 billion in fiscal savings and improving the creditworthiness of states nationwide, thereby expanding the public investment space that drives job creation. Improved fiscal balances have enabled states to borrow under Federal Guarantees, creating an opportunity for the World Bank's engagement through projects that support economic development and job creation.

Expenditure control frees up resources for market-oriented policies, while green reforms deliver tangible employment results, from renewable energy technical graduates in Ceará to smallholder farmers in Goiás gaining land titles and access to credit. By reducing deforestation, scaling low-carbon agriculture, and establishing water pricing mechanisms, the operations also align with World Bank evidence that fiscal savings reinvested in skills, infrastructure, and green industries produce the most durable and inclusive employment gains.

Beneficiaries

"Our way of thinking has completely changed. Our neighbors now want to use bio-inputs too." - Maura Lúcia, farmer at the Carlos Mariguela settlement in Itaberaí, Goiás

"Now we're able to take advantage of all the benefits the State offers to rural producers. We can go to the bank without feeling embarrassed." - João Batista de Morais, rural producer, Goiás

"This World Bank investment was very important, because many people can graduate in this field and pursue a career." - Kataryna Moraes (second from right to left), third-year student, Walter Ramos de Araújo School, Ceará

"It's good to have an account now, so everyone becomes aware of using water properly. If we improve and reduce the amount of water we're using, it's better for everyone. The next step is to reforest the rivers. They're all bare." - Therezinha Melo, local producer from Povoado Adique, municipality of Malhador, Sergipe

Lessons Learned

Two lessons stand out from this work. First, tying reforms to federal credit ratings and financing access created a powerful incentive for states to follow through: when states reformed, they unlocked better borrowing conditions, making it in their own interest to stay the course. Second, policy reform alone is not enough. When these operations set new rules in areas like land titling, agricultural practices, or water pricing, real change on the ground also required hands-on technical support and sustained investment to help governments put those policies into practice.

Next Steps

The portfolio continues to grow. Operations for Alagoas, Rio Grande do Sul, and Sergipe are under implementation, and further subnational DPFs are in the pipeline for São Paulo, Manaus, and Fortaleza. The Progestão program - a joint World Bank-Federal Treasury initiative providing technical assistance to modernize public financial management - complements the DPF series with long-term capacity building in human resource management, pensions, procurement, and public investment.

At the federal level, the Brazil Increasing Productivity, Sustainability and Inclusion DPF creates a reinforcing policy environment, including through ecological states' transfers to municipalities (the "green IBS transfer") now extending to all states under the new tax reform. The World Bank Group's Country Partnership Framework for Brazil FY24-28 provides the strategic anchor for this work, with subnational fiscal sustainability and the green transition remaining twin priorities through the end of the decade.