IDB backs $92.3 million overhaul of tax collection and public spending in Pernambuco

Expected results include higher state tax revenue as a share of GDP, lower tax collection costs, shorter audit and procurement timelines, and improved tax compliance.

The Board of Executive Directors of the Inter-American Development Bank (IDB) has approved a $92.3 million investment loan to help the Brazilian state of Pernambuco improve revenue collection and manage public spending. The financing is part of Profisco III, an IDB-supported program carried out in coordination with Brazil's federal government. The program helps states modernise fiscal administration, support the country's landmark tax reform, and strengthen subnational governments' long-term fiscal sustainability.

The investment will strengthen Pernambuco's capacity to plan, manage and oversee public resources, with support for institutional modernization, digital transformation, data management, cybersecurity and human resource management. Digital tools and artificial intelligence will support greater transparency, fiscal education and citizen engagement.

Expected results include higher state tax revenue as a share of GDP, lower tax collection costs, shorter audit and procurement timelines, and improved tax compliance. Simpler, faster and more transparent dealings with the tax administration could strengthen the business environment and support more effective, data-driven public policies.

Modern systems for public finance

Profisco III will help Pernambuco upgrade the institutions and tools behind its fiscal administration, from how the state manages data and protects its systems to how it organizes its workforce. These improvements are intended to strengthen officials' capacity to oversee public resources and plan for the state's needs.

Digital services for citizens and businesses

The project will use digital technologies and artificial intelligence to promote transparency, fiscal education and citizen participation. Better tax administration is expected to reduce collection costs and processing times, improve compliance and make state services easier for businesses to use, supporting a more competitive local economy.

Loan terms and next steps

The IDB loan has a 24.5-year repayment term, including a six-year grace period, and carries an interest rate based on SOFR. Pernambuco will contribute $10.3 million in counterpart financing. The operation will proceed through Brazil's required legal and administrative processes before implementation begins.