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MUNICIPAL FINANCE SECRETARY Marco Aurelio Santos Cardoso

SUBSECRETARY OF TAXATION Ricardo de Azevedo Martins

MANAGEMENT SUBSECRETARY Rodrigo Fernandes Barbosa

BUDGETARY SUPERINTENDENT Carlos Evandro Viegas

MUNICIPAL TREASURY SUPERINTENDENT Márcia Cristina de Lima Aldy

ADVISOR FOR EXTERNAL FUND RAISING Eliane Almeida de Vilhena Totti

COMMUNICATIONS ADVISOR Charbelly Imaculada de Almeida Estrella

ECONOMIC ADVISOR José Marcelo Souza Boavista

FISCAL TRANSPARENCY REPORT TEAM Alexandre da Costa Corrêa

Ana Cláudia Tavares Mendes Andre Azevedo de Albuquerque

André Gustavo Medeiros de Souza Lima Cláudia Rebordões Carauta Pombal

Eduardo da Cunha Vianna Marcia Sequeira de Oliveira Pereira

Ricardo Silveira Barros Soêmia Jurelevicius Marcello

Waldo de Andrade

The total or partial reproduction of this publication contents is allowed under the condition the source is mentioned.

Municipal Finance Secretariat of Rio de Janeiro. Rua Afonso Cavalcanti, nº 455, Anexo - Centro Administrativo São Sebastião, Cidade Nova Rio de Janeiro, RJ, CEP 20.211-900 http://www.rio.rj.gov.br/web/smf

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ANLYTICAL INDEX

I) INTRODUCTION 6 II) FISCAL RESULT 6 II.1) BUDGETARY RESULT 7 II.2) PRIMARY RESULT 8 II.3) NOMINAL RESULT 9 III) MUNICIPAL REVENUE 9 III.1) CURRENT REVENUE 11 III.1.1) TAX REVENUE 11 III.1.1.1) TAX ON SERVICES – ISS 12 III.1.1.2) PROPERTY TAX – IPTU 12 III.1.1.3) TAX ON REAL ESTATE AND REAL ESTATE REAL RIGHTS TRANSFER – ITBI 12 III.1.1.4) WITHHOLDING INCOME TAX - IRRF 13 III.1.2) CURRENT TRANSFERS 13 III.1.3) OTHER CURRENT REVENUE 16 III.1.3.1) CONTRIBUTION REVENUE 16 III.1.3.2) EQUITY REVENUE 16 III.1.3.3) INDUSTRIAL AND SERVICE REVENUE 17 III.1.3.4) OTHER CURRENT REVENUE 17 III.2) CAPITAL REVENUE 18 III.2.1) CREDIT OPERATIONS 18 III.2.2) SALE OF ASSETS 18 III.2.3) LOAN AMORTIZATION 18 III.2.4) CAPITAL TRANSFERS 18 IV) MUNICIPAL EXPENSES 19 IV.1) EXPENSES BY ECONOMIC CATEGORY 19 IV.2) EXPENSES BY GOVERNMENT FUNCTION 20 V) FUNDRAISING 21 V.1) PAC WITHIN THE RIO DE JANEIRO MUNICIPALITY 21 VI) FINANCIAL MANAGEMENT OF CASH AND DEBT 22 VI.1) FINANCIAL INVESTMENT OF CASH 22 VI.2) FINANCIAL DEBT 23 VIII) CONCLUSION 26

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ABREVIATIONS, INITIALS, and ACRONYMS

BID

Interamerican Development Bank BNDES Brazilian Development Bank

CDURP Urban Development Company of the Port Region of Rio de Janeiro

CGM Municipal General Controller's Office COMLURB Municipal Urban Cleaning Company COSIP Contribution to Fund the Public Lighting Service EDI Children's Development Space FASS Server's Health Assistance Fund FGTS Government Severance Indemnity Fund for Employees FINCON Accountability and Budget Execution System FPE States' Participation Fund FPM Cities' Participation Fund FUNDEB Brazilian National Education Development Fund FUNPREVI Special Pension Fund of the Municipality of Rio de Janeiro ICMS Value-Added Tax on Sales and Services of interstate, intercity

transportation, and of communication IPI-Exp Tax on Industrial Products IPM City's Participation Index IPTU Property Tax IPVA Motor Vehicle Ownership Tax IRRF Withheld Income Tax ISS Tax on Services ITBI Tax on Real Estate Transfer ITCMD Tax on Causa Mortis Succession and Donation ITR Rural Property Tax LC Complementary Law LFT Financial Treasury Bill LOA Annual Budget Law LRF Fiscal Responsibility Law LTN National Treasury Bill MCidades Ministry of the Cities MP Provisional Measure MRJ Municipality of Rio de Janeiro NTN-C National Treasury Notes - Series C OGU General Budget of Federal Government PAC Growth Acceleration Plan PCRJ City Hall of the Municipality of Rio de Janeiro PMAT Modernization Program of the Municipal Tax Administration

PNAFM National Support Program to Administrative and Fiscal Management of Brazilian Cities

PPI Carioca Payment Incentive Program of tax debts, registered in active debt or not

Previ-Rio Social Security and Assistance Institute of the Municipality of Rio de Janeiro

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Pró-Moradia Federal Government Program of housing access Pró-Transporte Federal Government Program for funding to the public and private

sector, implementation of infrastructure systems of the urban collective transportation and to urban mobility

RCL Current Net Revenue RLR Actual Net Revenue Salário Educação Social Contribution intended to the funding of programs, projects, and

actions aimed at the funding of the public basic education

SELIC Special System of Settlement and Custody SIG Managerial Information System SMF Municipal Finance Secretariat SUS National Health System TCDL Garbage Collection Fee TransCarioca BRT from Barra to Galeão UPA

Health Emergency Unit UPP Pacifying Police Unit

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PRESENTATION

The Fiscal Transparency Report is a quadrimesterly publication of the Finance Secretariat of the

Municipality of Rio de Janeiro - SMF, where the Municipality's revenue and expenses are analyzed.

Regarding the figures presented throughout the report the notes below apply:

• All figures presented - unless when expressly specified - are nominal and accumulated

until the quadrimester in question.

• All figures comparisons refer to the same period as last year - unless when expressly

specified.

This initiative of Rio's Municipality, by SMF, aims to ensure transparency in the financial

management of public resources, since the entry into Municipal Treasury coffers until application,

based on budget planning, and considering current legislation and the limits defined by the Fiscal

Responsibility Law - LRF (Complementary Law No. 101/2000).

The data used were taken mainly from the Fincon System of the General Controller of the

Municipality - CGM. There were considered all intrabudgetary revenues and expenses and all

indirect administration entities (except CDURP - Urban Development Company of the Port Region of

Rio de Janeiro), including the pension fund for the public workers, the FUNPREVI, in order that the

data hereby presented are consistent with the LRF statements published by CGM. In this sense, the

CDURP numbers are not consolidated as although it is fully controlled by the Municipality, it has

budgetary independence given its nature of a not dependent state company, in accordance with

current legislation.

The report is divided into the following sections:

i. In the first one, a general overview of the public accounts is presented;

ii. In the second one, the budgetary results, primary and nominal, are presented;

iii. In the third section, the municipal revenues are analyzed by economic categories;

iv. In the fourth, the expenses figures committed by economic category, by government function

and by result area are presented;

v. In the fifth, a presentation is made on the financing sources and the works in progress of the

Growth Acceleration Program (PAC) and Credit Operations;

vi. The sixth and last one brings considerations on the applications of the Municipal cash balances

and public debt management.

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I) INTRODUCTION

In 2013, the Total Revenue of the Municipality of Rio de Janeiro grew 10.5%. Such growth was

concentrated in the Current Revenues (11.7%), influenced by the positive effects of the Payment

Incentive Program – PPI Carioca, specific law that allowed the citizen to pay in installments debts of

ISS, IPTU, and TCDL (garbage collection), allowing an increment in the recovery of late taxes near

R$ 1 billion in relation to 2013. In such context, the Tax Revenues (main component of the Current

Revenues) grew 11.1%.

The amount of R$ 21.8 billion in expenses deployed this year represent an increase of 4.6%, with

highlight to the moderation in the growth of the Other Current Expenses - which represent 35% of

the Total Expense and grew 5.4% (percentage below the 5.8% presented by IPCA-E). The budget

profile presented in Table I continues showing relevant fiscal space to the strategic investments

defined by the current Administration.

It is worth to repeat that this profile is radically different from that checked in the last decade,

when the expenditures with Debt and Expenses of Personnel prevented the investment rate to

exceed 10%. Under such perspective, of the final budget allocation, 18.1% were allocated to

Investments, and 46.5% to Expenses with Personnel and Debt Services (Amortization and Charges) -

a clear reversion of the 64% occupied by such two items in the budgets until 2008.

TABLE I - EXPENSES PROFILE - YEAR OF 2013 - R$ Million

Budget Execution In Millions Category Group 6th Bimester of 2013

LOA Final Provision

% of Final Provision

Committed % of Committed Expense

Paid

Current 1- Personnel 10,446.9 10,497.3 42.7% 10,340.2 47.4% 10,323.8 2- Debt Interests 589.6 559.8 2.3% 550.4 2.5% 550.4 3- Other Current Ones 8,000.4 8,341.6 34.0 7,555.3 34.6% 17,970.6

Total Current Expenses 19,056.9 19,398.7 79.0% 18,445.9 84.5% 17,970.6 Capital 4- Investments 3,950.7 4,440.8 18.1% 2,810.4 12.9% 2,542.2

5- Inversions 162.2 296.9 1.2% 198.8 0.9% 198.7 6- Debt Amortization 306.6 365.5 1.5% 362.2 1.7% 362.2

Capital Total 4,419.6 5,103.2 20.8% 3,371.4 15.5% 3,103.1 Contingency Reserve 36.1 53.8 0.2% 0.0 - 0.0 Full Total 23,512.6 24,555.7 100.0% 21,817.3 100.0% 21,073.6

Source: Budget Balance (RREO - Annex I)

II) FISCAL RESULT

This section presents the fiscal result of 2013 and compares it to the same period of the previous

year, showing thereby that the Total Income presented a growth of 10.5% while the Total Expense

committed experienced an increase of 4.6%.

From the income point of view, the Current Revenues were influenced by PPI carioca. Regarding the

Capital Revenues, the item Credit Operations presented expressive growth, result of the ingress of

resources originated from credit programs from BNDES and CEF, for the BRT Transcarioca System

and several infrastructure works.

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Regarding the Expenses, it shall be highlight that the very moderated variation basically occurred

due to investments (13% of the expense) and to Other Current Expenses (35% of the expense).

The budget, primary and nominal results are presented below, into more details.

II.1) BUDGETARY RESULT

At the end of the year, the Budgetary Result is determined by the difference between the Total

Revenue collected and the Total Expenses committed. A Surplus Budget Result reflects a Revenue

above Expenses (thus generating cash accumulation), while a deficit Budget Result comprises the

reverse situation, in which there is a consumption of accumulated cash surplus in previous periods.

In 2013, the Budget Result was a deficit of R$ 68.2 billion, considering the R$ 21.7 billion of Total

Revenue collected and the R$ 21.8 billion of Total Expense committed, as it may be seen in Table II

below.

TABLE II - BUDGETARY RESULT

YEAR OF 2012 X YEAR OF 2013

Description YEAR Description YEAR

2012 2013 2012 2013

CURRENT REVENUES [I]

18,569.2 20,737.1 CURRENT EXPENSES [IV]

17,077.5 18,445.9

Tax Revenue 7,523.0 8,358.9 Personnel and Social Charges

9,406.8 10,340.2

Contributions Revenue

2,400.6 2,634.7 Debt Interest and Services

499.2 550.4

Equity Revenue 946.9 767.3 Other Current Expenses

7,171.5 7,555.3

Industrial Revenue 6.2 6.6

Services Revenue 316.6 350.2

Current Transfers 5,879.2 6,591.7

Other Current Revenues

1,496.7 2,027.8

CURRENT BUDGET RESULT [I]-[IV] 1,491.7 2,291.2

CAPITAL REVENUE [III]

1,120.3 1,012.0 CAPITAL EXPENSES [V]

3,773.2 3,371.4

Credit Operations 457.1 717.9 Investments 3,322.0 2,810.4

Sale of Assets 387.3 15.3 Financial Inversions 171.0 198.8

Loans amortization 99.6 83.1 Debt Amortization 280.2 362.2

Capital Transfers 176.4 195.6

Other Capital Revenue

- 0.1

CAPITAL BUDGETARY RESULT [III]-[VI] (2,652.90 92,359.40

TOTAL REVENUE [III]=[I]+II]

19,689.5 21,749.1 TOTAL EXPENSE [VI]=[IV+[V]

20,850.7 21,817.3

BUDGETARY RESULT [III]-[V] (1,161.2) (68.2)

Source: RREO 6th BIMESTER OF 2012 AND 2013.

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Although revenues and expenses are analyzed into more detail in the respective sections of this

report, it is worth mentioning the main factors that make up the variation in budgeting result.

On the side of revenues collected, the growth of 10.5% was equivalent to an addition of R$ 2.0

billion. This result was basically due to the growth of R$ 2.1 billion from the Current Revenue - with

highlight to the Other Current Revenue, which increase of R$ 531.1 million (35.5%) was strongly

impacted by the effects of PPI Carioca.

On the expense side, the total committed grew 4.6% (R$ 966.6 million), result from the growth of

8.0% in the Current Expenses and from the reduction of 10.6% in the Capital Expenses.

II.2) PRIMARY RESULT

The Primary Result is the difference between the Primary Revenue (Total Revenue minus Financial

Revenue) and Primary Expense (Total Expense with Financial Expense deducted).

TABLE III - PRIMARY RESULT

YEAR OF 2012 X YEAR OF 2013 In R$ Million In R$ Million

DESCRIPTION YEAR

DESCRIPTION YEAR

2012 2013 2012 2013

CURRENT REVENUE [I] 18,569.2 20,737.1 CURRENT EXPENSES [VI] 17,077.5 18,445.9 Tax Revenue 7,523.0 8,358.9 Personnel and Social Charges 9,406.8 10,340.2 Contributions Revenue 2,400.6 2,634.7 Debt Interest and Services 499.2 550.4 Equity Revenue 946.9 767.3 Other Current Expenses 7,171.5 7,555.3 Industrial Revenue 6.2 6.6 Services Revenue 316.6 350.2 Current Transfers 5,879.2 6,591.7 Other Current Revenues 1,496.7 2,027.8 CAPITAL REVENUE [III] 1,120.3 1,012.0 CAPITAL EXPENSES [VII] 3,773.2 3,371.4 Credit Operations 457.1 717.9 Investments 3,322.0 2,810.4 Sale of Assets 387.3 15.3 Financial Inversions 171.0 198.8 Loans amortization 99.6 83.1 Debt Amortization 280.2 362.2 Capital Transfers 176.4 195.6 Other Capital Revenue - 0.1 TOTAL REVENUE [lll]=[l]+[ll] 19,689.5 21,749.1 TOTAL EXPENSE [VIII] =[VI]+[VII] 20,850.7 21,817.3 Securities Revenues 688.4 459.4 Interests and Debt Charges 499.2 550.4 Loans Interests 43.7 72.4 Grant of Loans 92.1 55.3

Credit Operations 457.1 717.9 Acquisition of Capital Securities already Paid - -

Sale of Assets 387.3 15.3 Debt Amortization 280.2 362.2 Loans Amortization 99.6 83.1 FINANCIAL REVENUE [IV] 1,676.0 1,348.1 FINANCIAL EXPENSES [IX] 871.5 967.9 TOTAL PRIMARY REVENUE [V]=[III]-[IV] 18,013.5 20,401.0 TOTAL PRIMARY EXPENSE [X]=[VIII]-[IX] 19,979.2 20,849.4

In R$ Million In R$ Million

DESCRIPTION YEAR ANUAL FISCAL GOAL 2012 2013

2012 2013 Primary Result Goal fixed on the Fiscal Goal Annex (1,510.1) (1,686.9)

PRIMARY RESULT [XI]=[V]-[X] (1,965.7) (448.4)

Source: RREO 6th BIMESTER OF 2012 AND 2013. Committed Expenses.

Source: Budget Law No. 5.551 of January 10th, 2013.

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The Primary Result of the year of 2013 was negative in R$448.4 million, 77.2% lower than the

negative R$2.0 billion assessed in 2012. The Primary Result is inferior to the Budgetary Result,

taking into account that part of the Financial Revenue (notedly Credit Operation) are funding

sources for Investments.

The growth of 13.3% in the Primary Revenue was superior to the 10.5% of growth in Total Revenue,

since that it is expurgated, as showed in Table III, the expense of financial nature that presented

drop in relation to the previous year (-19.6%).

On its turn, the growth of the Primary Expense by 4.4% influenced the growth of the Total Expense

that was 4.6%. The financial expenses increased 11.1% in relation to the previous year.

II.3) NOMINAL RESULT

The Nominal Result assessed in 2013 reached the negative amount (surplus) of R$ 233.0 million,

which represents a decrease of 2.7% in the balance of Net Fiscal Debt in relation to the balance

determined on December 31st, 2012.

TABLE IV - NOMINAL RESULT

31 DECEMBER 2012 X 31 DECEMBER 2013

In R$ Million

ON 31/12/2012 [B]

ON 31/12/2013 [B]

Var. Absol. [B]-[A]

Var. %

[B]/[A]

CONSOLIDATED DEBT 11,387.0 11,781.0 394.0 3.5% (-) AVAILABLE ASSET 4,268.1 4,221.6 (46.4) -1.1% (-) FINANCIAL RECEIVABLES 245.5 132.2 (113.3) 46.2% (+) BALANCE PAYABLE PROCESSED (Except mandatory order) 1,813.6 1,095.0 (718.6) -39.6%

NET CONSOLIDATED DEBT 8,687.0 8,522.2 (164.8) -1.9% LIABILITIES RECOGNIZED 37.4 105.5 68.1 182.4%

NET FISCAL DEBT 8,649.6 8,416.7 (233.0) -2.7%

NOMINAL RESULT ON 31/12/2013 (233.0)

TARGET OF NOMINAL RESULT FOR THE YEAR OF 2013 (LOA 2013) 175.6 Source: RREO - 6TH BIMESTER OF 2013.

It shall be reminded that the positive nominal result is considered a deficit, that is, an increase of

the net cash debt and financial receivables; while a negative result is considered a surplus, or

reduction of the net debt.

III) MUNICIPAL REVENUE

This section presents the values actually collected (Table V), using as data source the Budged

Balance published in the Summary Report of Budget Execution.

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TABLE V - BUDGETARY REVENUES BY ECONOMIC CATEGORY AND ORIGIN (ALL FUNDING SOURCES)

In R$ Million

DESCRIPTION

CU R R E N T V A L U E S JANUARY TO DECEMBER

2012 2013 Var. Nominal

Var. %

CURRENT REVENUES 18,569.2 20,737.1 2167.9 11.7% Tax Revenue 7,523.0 8,358.9 835.9 1 1 . 1 % Contributions Revenue 2400.6 2,634.7 234.1 9.8% Equity Revenue 946.9 767.3 -179.5 -19.0% Industrial Revenue 6.2 6.6 0.3 5.0% Services Revenue 316.6 350.2 33.6 10.6% Current Transfers 5,879.2 6,591.7 7125 1 2 1 % Other Current Revenues 1,496.7 2,027.8 531.1 35.5% CAPITAL REVENUES 1,120.3 1,012.0 -108.3 -9.7% Credit Operations 457.1 717.9 260.9 57.1% Sale of Assets 387.3 15.3 -3720 -96.0% Loans Amortization 99.6 83.1 -16.5 -16.5% Capital Transfers 176.4 195.6 19.3 10.9% Other Capital Revenue - 0.1 0.05 -

TOTAL REVENUE 19,689.5 21,749.1 2,059.7 10.5% Source: RREO 6th BIMESTER OF 2012 AND 2013. 1Values updated by IPCA-E (IBGE) as of 31/12/2013.

Composition of Total Revenue

Total Revenue is comprised of Current Revenues and Capital Revenues. In Chart I below, it is

possible to see the composition of Total Revenue, considering the revenue estimates of the Budget

Law 2013.

CHART I - COMPOSITION OF TOTAL REVENUE BY ECONOMIC CATEGORIES IN THE FISCAL YEAR OF 2013 ESTIMATES OF BUDGET LAW (ALL FUNDING SOURCES)

Chart II shows the Total Revenue forecast in LOA 2013, highlighting the major revenue groups either

under the estimate point of view (LOA 203), and under the collection point of view. It shall be

highlighted that the Tax and Transfer Revenue together represented 68.7% of the Total Revenue in

2013.

Current Revenues 95.3%

Capital Revenues 4.7%

Capital Revenues

Current Revenues 88.5%

BUDGET LAW COLLECTION

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CHART II - COMPOSITION OF TOTAL REVENUE IN THE FISCAL YEAR OF 2013

(ALL FUNDING SOURCES)

III.1) CURRENT REVENUES

The Current Revenues were R$ 20.7 billion against R$ 18.6 billion in 2012 - growth of 11.7%. Such

revenues include the Tax Revenue, Contributions Revenue, Equity Revenue, Industrial Revenue,

Service Revenue, Current Transfers, and Other Current Revenues reaching 95.3% of the Total

Revenue.

III.1.1) TAX REVENUE

The chart below shows the composition of the Tax Revenues collected in 2013.

CHART III - COMPOSITION OF TAX REVENUE

The table below shows the values of the components of the Tax Revenue.

Tax Revenue 35.7%

Capital Revenues 11.5%

Other Current Revenues 7.4%

Current Transfers

28.5%

Industrial Revenue

1.4% Industrial Revenue

0.1%

Equity Revenue

4.2%

Contributions Revenue

11.2%

Other Current Revenues 9.3%

Capital Revenues

4.7%

Tax Revenue

38.4%

Contributions Revenue

12.1% Equity

Revenue 3.5%

Industrial Revenue

0.0%

Services Revenue

1.6%

Current Transfers

30.3%

Other Current Revenues

9.3% Capital Revenues 4.7%

Industrial Revenue

0.0%

Current Transfers

30.3% Tax Revenue

38.4%

Services Revenue

1.6% TCDL 1.3%

Equity Revenue

3.5%

Contributions Revenue

12.1%

ISS 22.1%

IPTU 8.5%

ITBI 3.6%

IRRE 2.5%

Other Rates 0.4%

BUDGET LAW COLLECTION

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TABLE VI - TAX REVENUE BY ECONOMIC CATEGORY AND ORIGIN

(ALL FUNDING SOURCES) In R$ Million

Description

C U R R E N T V A L U E S

JANUARY TO DECEMBER 2012 2013 Var.

Nominal Var. %

Tax Revenue 7,523.0 8,358.9 835.9 11.1%

IPTU 1,622.4 1,844.2 221.8 13.7%

IRRF 508.2 549.0 40.7 8.0%

ITBI 744.9 786.9 42.0 5.6%

ISS 4,292.3 4,806.0 513.7 12.0%

TCDL 257.8 278.1 20.4 7.9%

Other Rates 97.4 94.7 (2.7) -2.7%

Source: RREO and Systems ORCAMENTO and FINCON. 1Values updated by IPCA-E/IBGE (base date 31/12/2013).

III.1.1.1) TAX ON SERVICES – ISS

The highlight in relation to such tax is that the growth of 12.0% reflected in a positive manner the

effects of the Payment Incentive Program - PPI Carioca.

III.1.1.2) PROPERTY TAX – IPTU

In 2013, IPTU collected R$ 1.8 billion, against R$ 1.6 billion in last year, with a growth of 13.7%. It

shall be highlighted that IPTU reflects, in great part, the past inflation, that is, in 2013 the base

value of IPTU was corrected by the 2012 inflation (5.8% by IPCA-E). In 2013, part of the increase

observed in the IPTU collection was due to inflows from PPI Carioca. A secondary fact of an

increased IPTU derives from efforts to update the registration database of properties in the

Municipality.

III.1.1.3) TAX ON REAL ESTATE AND REAL ESTATE REAL RIGHTS TRANSFER -

ITBI

The collection of ITBI reached R$ 786.9 million against R$ 744.9 million in 2012 (growth of 5.6%).

ITBI is a 2% tax levied on the value of the real estate transaction and its behavior reflects,

therefore, the market dynamics. The slowdown signals in the growth of such item reflects an

stability movement of this market after years of strong price increase.

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III.1.1.4) WITHHELDING INCOME TAX

IRRF collected R$ 549.0 million in 2013 against R$ 508.2 million in 2012, with variation of 8.0%. Such

revenue comprehends, especially, the collection of the income tax on the monthly payroll of the

Executive Branch and on the bonus from the Results agreement (Meritocracy).

III.1.2) CURRENT TRANSFERS

Increased Participation in Total Revenue after Tax Revenue, the Current Taxes consider the inflow

of resources from the Union, the State, and agreements for current expenses, among others. Most

of these transfers are of mandatory nature (constitutional allocation of tax revenues among federal

agencies), therefore the voluntary transfers (e.g. agreements) are less significant in terms of

amount collected.

In the case of federal and state tax transfers, the behavior of tranches transferred to the

Municipality relates to the economic activity reflected in the collection of such entities (Rio de

Janeiro State and Union), other than the specific criteria for transferring.

Note that, unlike most of the Brazilian municipalities that are totally dependent on state and

federal transfers, the Municipality of Rio de Janeiro maintains its independence thanks to its own

collection, as seen in Chart IV below.

CHART IV - COMPOSITION OF CURRENT TRANSFERS

(ALL FUNDING SOURCES)

The Current Transfers totaled R$ 6.6 billion in 2013 - a growth of 12.1%.

Tax revenue 38,4%

Contributions Revenue 12,1%

Equity Revenue 3,5%

Industrial Revenues

0,0% Services Revenue 1,6%

Other Current Revenues

9,3% Capital Revenues 4,7%

SUS 6,4%

ICMS (Net) 8,2%

IPVA (Net)

2,1%

FUNDEB 9,3%

Other 4,3%

Current Transfers 30,3%

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TABLE VII - CURRENT TRANSFERS BY ECONOMIC CATEGORY AND ORIGIN

(ALL FUNDING SOURCES)

In R$ Million

Description

C U R R E N T V A L U E S

JANUARY TO DECEMBER

2012 2013 Var. Nominal

Var. %

Current Transfers 5,879.2 6,591.7 7125 12.1%

Intergovernmental 5,858.6 6,571.7 713.1 12.2%

Net FPM 184.0 197.1 13.1 7.1%

SUS 1,294.4 1,385.6 91.2 7.0%

Net ICMS 1.5922 1.7821 190.0 11.9%

Net IPVA 428.1 486.6 38.5 9.0%

Net IPI-EXP 42.7 44.3 1.6 3.8%

Royalties 220.6 221.2 0.6 0.3%

FUNDEB 1,686.3 2017.3 331.0 19.6%

Education Salary 265.5 291.3 25.8 9.7%

Other 144.8 166.2 21.3 14.7%

Private Institutions - - - -

Agreements 20.6 19.9 (0.6) -3.0%

Source: RREO and ORCAMENTO and FINCON Systems. 1Values updated by IPCA-E IBGE (base date 31/12/2013).

Below, some comments.

FPM ― The collection of FPM - Union transfer made of resources from IPI and the Income Tax -

net of the Municipality portion for the composition of FUNDEB, reached the amount of R$ 197.1

million, against R$ 184.0 million in 2012 (variation of 7.1%). The growth in this source has been

hampered due to IPI tax relief performed by the Federal Government in order to stimulate the

economy.

SUS ― Reflecting the increase of the number of beds offered by the municipal hospital network,

family's clinics, and UPAs, the SUS collection had an increase of 7.0%.

ICMS ― The collection of state transfer of ICMS, net of the Municipality's portion for the

composition of FUNDEB, reached R$ 1.8 billion, against R$1.6 billion in 2012 (growth of 11.9%).

The State of Rio de Janeiro determines annually the IPMs (Municipality Participation Index) which

are used for apportionment, during the following year, out of 25% of the ICMS collection that will

suit Fluminense municipalities. In the case of the Municipality of Rio de Janeiro, IPM had been

presenting successive declines since 2005, contributing to the negative impact in this item.

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However, it is worth noting the increase of IPM for the Municipaity of Rio de Janeiro in 2012,

keeping at the same level in 2013, which can be seen in the chart below1.

GRAPHIC V - IPM EVOLUTION OF THE MUNICIPALITY OF RIO DE JANEIRO

2004 TO 2013

OIL ROYALTIES ― Transfer of Oil Royalties reached R$ 221.2 million, against R$ 220.6 million in

the same period of 2012 (growth of 0.3%). It is worth mentioning that the transfer of oil royalties

to the Municipality is a function of external factors such as the trajectory of oil barrel prices,

exchange rate and physical production in the extraction fields in which the Municipality receives

such participation, among others.

FUNDEB ― The revenue transfer of FUNDEB reached R$ 2.0 billion against R$ 1.7 billion in 2012

(growth of 19.6%). The quota-shares of the FPM, ICMS, IPVA, IPI-Ex, Exemption of ICMS on Exports

- LC 87/96 (Kandir Law), ITR, ITCM, and FPE transfers, being that, more than 80% of the

composition of FUNDEB is due to the quota-share of ICMS. The increase in revenue of FUNDEB, as

with SUS with the development of the health network, follows a path of increase in the scope of

the municipal education network, especially in relation to the Children's Development Spaces -

EDI.

1 Decree No. 43.976, of 12/6/2012.

35. , 330 35. , 527

34. , 216

32 . 593 31. , 599

30. , 943

28. , 791 27. , 757

28. , 502 28. , 216

26 27 28 29 30 31 32 33 34 35 36 37

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

AND

2013: Fixed Index (Decree 43.976 of 12/06/2012

%

16

III.1.3) OTHER CURRENT REVENUES

III.1.3.1) CONTRIBUTION REVENUES

In 2013, the Contribution Revenue reached R$ 2.6 billion, higher by 9.8% of the R$ 2.4 billion

collected in the previous year. This revenue consists of:

Social Contributions ― Include the Workers contribution to fund their own pension system (11%

aliquot), the Employer Contribution (22% aliquot), the Additional Contribution (Law 5.300/2011)

and the resources provided by the Municipal Treasury and by workers for the formation of the

Worker Healthcare Fund - FASS. This revenue reached R$ 2.4 billion, higher by 9.6% of the R$

2.2 billion of 2012.

Economic Contributions ― Include the Contribution for the Funding of Public Lighting Service

(COSIP) established by Law No. 5132 of December 21, 2009, charged by the electricity

distribution concessionary based on the comsumption and monthly transferred to the

Municipality. R$ 206.5 million were collected, a growth of 11.0% over the R$ 186.0 million of

2012.

III.1.3.2) EQUITY REVENUE

The Equity Revenue reached R$ 767.3 million in 2013, against R$ 946.9 million in the previous year,

in a reduction of 19.0%. This revenue consists of:

Securities Revenue - Corresponds to the revenue of application of availabilities and represented

59.9% of the Equity Revenue in 2013. There was an inflow of R$ 459 million against R$ 688.4

million in the previous year (reduction of 33.3%).

This is the result of the reduction in average interest rates applied during this period, in view of

the Monetary Policy adopted by the Central Bank and, also, the invested average cash reduction

of the Treasury Resources related to the same period of last year. Additionally, in 2012, there

was an extraordinary increase related to the sales of public bonds of the own portfolio of the

Municipality (NTN-C) which had an accounting profit of R$ 147.7 million, which did not occur in

2013.

Other Equity Revenues – Composed of revenues from rents, forums, lademiums, concessions,

and permits, etc., these revenues increased from R$ 258.5 million in 2012 to R$ 308.0 million in

2013 (addition of 19.2%). Such performance was especially boosted by the increase of the

collection in the bid of new concessions. Such revenue is entered in the item Other Revenues

from Concessions and Permits, which in 2012 collected R$ 34.5 million and, in 2013, reached R$

123.0 million, presenting an increase of 256.5%.

17

III.1.3.3) INDUSTRIAL AND SERVICE REVENUE

Industrial and Services Revenues comprise mostly, resources directly collected by the indirect

administration (autarchies, foundations, public companies, and semi-public companies). Together

totaled R$ 356.7 million, while revenue in the previous year was R$ 322.8 million (increase of

10.5%). Most of these revenues are intrabudgetary in nature, i.e., amounts paid by the Municipal

Treasury for providing services of indirect administration in municipal units, such as cleaning in

schools and health facilities, official media and others.

III.1.3.4) OTHER CURRENT REVENUES

The table below shows the expressive growth in the items that compose this item.

TABLE VIII - OTHER CURRENT REVENUES BY ECONOMIC CATEGORY AND ORIGIN

NOMINAL VARIATION BETWEEN THE FISCAL YEARS OF 2012 AND 2013 (ALL FUNDING SOURCES)

In R$ Million

Description

C U R R E N T V A L U E S

JANUARY TO DECEMBER 2012 2013 Var.

Nominal Var. %

Other Current Revenues 1,496.7 2,027.8 531.1 35.5% Fines and Interest in Arrears 518.3 913.8 395.5 76.3% Compensations and Refunds 64.7 121.3 56.7 87.6% Outstanding Debt 553.9 573.4 19.5 3.5% Miscellaneous Revenue 359.9 419.3 59.5 16.5%

A great part of this increase on Other Current Revenues is due to the PPI Carioca - Incentive

Payment Program which was implemented by Law 5.546 of December 27th, 2012 and sanctioned by

Decrees 36.776 and 36.777 of February 15th, 2013. The program opened a 120-day span, counted

from February 18th, 2013 for new financing of ISS, IPTU and TCDL debts, registered as active debt

or otherwise, with a 70% reduction of interest in arrears for cases of cash payment, and a 50%

reduction for installment payments.

In such context, the effects of the Program occurred, in the majority, in the items Fines and

Interests in Arrears and Outstanding Debt.

Fines and Interests in Arrears – It shall be highlighted that this group includes fines and arrears

on debts in administrative phase (SMF) and also in collection phase of the active debt by the

Attorney General of the Municipality. It is valid to highlight in this group the increase of the

collection of Fines and Interests in Arrears of the Active Debt of IPTU that passed from R$ 179.2

million in the fiscal year of 2012 to R$ 517.9 million in 2013 (189.1% of increase) and of ISS that

18

collected R$ 112.7 million realized in the previous year (variation of 160.1%), increases derived

from PPI Carioca;

Outstanding Debt – The revenues of 2012 were impacted by the offsetting of accounts between

the Municipality and CEDAE, being deducted expenses recognized by the Municipality with the

cancellation of administrative tax assessment notices registered against CEDAE and already

registered in outstanding debt, in an amount next to R$ 300 million. Thus, if such effect of the

non-tax outstanding debt is expurgated from the values recorded in 2012, the growth in the

collection of outstanding debt principal checked in 2013 exceeds R$ 300 million, effect of PPI

Carioca.

III.2) CAPITAL REVENUES

Capital Revenues (see Table V) performed in 2013 reached R$ 1.0 billion against R$ 1.1 billion in

2012 (reduction of 9.7%). They comprise revenues from Credit Operations, Sale of Assets,

Amortization of Loans, Capital Transfers, and Other Capital Revenues.

III.2.1) CREDIT OPERATIONS

The Credit Operations reached R$ 717.9 million, an increase of 57.1% in relation to the R$ 457.1

million of 2012. It shall be highlighted the R$ 470.7 million released by BNDES for Transcarioca

program.

III.2.2) SALE OF ASSETS

Revenue from Sale of Assets was R$ 15.3 million, 96.0% less than the R$ 387.3 million collected in

the previous year. In 2012, the result had been increased due to the payment by Banco Santander of

installment related to the exclusivity contract of payment to active and inactive workers of the

Municipality, effect that did not occur in 2013.

III.2.3) LOAN AMORTIZATION

The revenue of Loan Amortization, in 2013, reached R$ 83.1 million, being 16.5% below the R$ 99.6

million of 2012. These revenues are mainly resources from Previ-Rio regarding loan returns of equity

financing programs granted to workers.

III.2.4) CAPITAL TRANSFERS

The amount collected, in 2013, was R$ 195.6 million - growth of 10.9% against R$ 176.4 million in

the previous year. These are almost solely resources from federal transfers provided by the

19

Agreements item, in which the Urbanization of Settlements in Morro da Providência, Landslide

Containment works in Risk Areas and Environmental Recovery of the Jacarepaguá Basin.

IV) MUNICIPAL EXPENSES

IV.1) EXPENSES BY ECONOMIC CATEGORY

The Table below shows the budget execution of 2013, and the following chart shows the

participation of each expense group in the total budget.

TABLE IX - BUDGETARY EXPENSES BY ECONOMIC CATEGORY

FISCAL YEARS OF 2012 AND 2013 (ALL FUNDING SOURCES)

Budget Execution In Million

Category Group 2012 Committed

2013 Committed

Variation

Nominal %

Current 1 - Personnel 9,406.8 10,340.2 933.4 9.9%

2 - Debt Interest 499.2 550.4 51.2 10.3%

3 - Other Current 7,171.5 7,555.3 383.8 5.4%

Total 17,077.5 18,445.9 1368.5 8.0%

Capital 4- Investments 3,322.0 2,810.4 -511.6 -15.4%

5 - Inversions 171.0 198.8 27 .8 16.3%

6 - Debt Amortization 280.2 362.2 82.0 29.2%

Total 3,773.2 3,371.4 -401.8 •10.6%

Contingency Reserve 0.0 0.0 0.0 -

General Total 20,850.7 21,817.3 966.6 4.6%

Source: SIG and FINCON

CHART VI - PARTICIPATION OF EACH EXPENSE GROUP IN THE TOTAL BUDGET COMMITTED (ALL FUNDING SOURCES)

2012 2013

It is important to highlight that the reduction of 15.4% in the Investment Expenses was the reflex of

questions related to the schedules of the several stages of such expenditures. To the fiscal year of

Debt Amortization 1.3%

Personnel 45.1%

Debt Interests 2.4%

Other Current 34.5%

Investments 15.9%

Financial Inversions

0.8% Financial

Inversions 0.9% Debt Amortization

1.7%

Personnel 47.4%

Debt Interests 2.5%

Other Current 34.6%

Investments 12.9%

20

2014, the budget forecasts strong growth in such category of expense in relation to what was

committed in 2013.

The strong variation in the Debt Amortization group is especially due to the deposit of amortization

portion related to the judicial dispute with the Union on the amounts paid in 2006, in the

approximate value of R$ 51 million.

IV.2) EXPENSE BY GOVERNMENT FUNCTION

As for the following table, it is found that the areas of Education, Health, Social Security, and

Urbanism represented, at the end of the fiscal year of 2013, 68.3% of the budget expenses.

TABLE X - BUDGET EXPENSES BY GOVERNMENT FUNCTION

FISCAL YEAR OF 2013 - (ALL FUNDING SOURCES)

In R$ Million

Function 2013

Committed Compos.

ADMINISTRATION 1,892.2 8.7%

SOCIAL ASSISTANCE 706.4 3.2%

SCIENCE AND TECHNOLOGY 24.8 0.1%

TRADE AND SERVICES 138.4 0.6%

CULTURE 252.0 1.2%

SPORTS AND LEISURE 103.3 0.5%

CITIZENSHIP RIGHTS 11.5 0.1%

EDUCATION 4,895.1 22.4%

SPECIAL CHARGES 1,102.4 5.1%

ENVIRONMENTAL MANAGEMENT 109.3 0.5%

HOUSING 467.6 2.1%

INDUSTRY 8.1 0.0%

JUDICIARY 73.7 0.3%

LEGISLATIVE 540.8 2.5%

SOCIAL SECURITY 2,848.3 13.1%

SANITATION 872.4 4.0%

HEALTH 3,969.6 18.2%

PUBLIC SAFETY 3433 1.6%

WORK 13.1 0.1%

TRANSPORTATION 2563 1.2%

URBANISM 3,188.7 14.6%

General Total 21,817.3 100.0%

We emphasize that the opening up of the expenses above are not directly linked to the application

of constitutional provisions of mandatory resources in Education (25%) and Health (15%), whose

computations are based on the spending comparison in these areas with specific items of revenue

not reflected in this Table.

21

V) FUNDRAISING

V.1) PAC WITHIN THE RIO DE JANEIRO MUNICIPALITY

The operations of the Growth Acceleration Program - PAC, signed between the Municipality of Rio

de Janeiro and the Union, represent a set of interventions contracted over the last few years,

funded both with funds from the Union General Budget - OGU (of non-refundable nature), but also

through financing.

The Third quadrimester of 2013 was marked by the incorporation of a new goal to the municipal

obligations regarding the Olympic Games of 2016. It is regarding the Sports Complex of Deodoro,

which was under the State conduct and through the subrogation of the agreement for the

performance of the General Urbanistic Plan, Basic, Executive, and Legal Projects passed to the

municipal obligation.

In relation to the other operations directly related to the Olympic Games, which count on the

resources from the Ministry of Sports in the scope of Growth Acceleration Program - PAC, the first to

be started, as of 11/01/2013, refers to the works of the Tennis Center.

Regarding the operations in progress, Rio Municipality started the negotiation process with MCidades

to the use of the earnings in the contracts of PAC 1, considering the huge identified values. The

process culminated with the approval of the enhancement of the Urbanization works of Mandela de

Pedra community, integral part of PAC Manguinhos, adding R$ 4.5 million to the project.

The following table presents an statement of the total of the projects in progress in PAC scope, in

the city of Rio de Janeiro:

TABLE XI - TABLE OF THE OPERATIONS IN PROGRESS

In R$ thousand

Modality Situation USES AND SOURCES TOTAL ACCRUED PERFORMED

PCRJ EXTERNAL TOTAL PCRJ EXTERNAL TOTAL Transfer PAC I - OGU 2007/2008/2009 91,173 493,6S9 584,862 67,234 433,179 500,413

PAC II - OGU 2011/2012/2013 129,251 1,949,704 2,078,955 55,312 86,875 142,187

Loan

PAC FGTS - CEF 335,525 1,006,910 1,345,738 147,590 473,667 621,257

PAC MOBILITY 727,663 2,276,000 3,003,663 418,629 962,007 1,380,636 TOTAL 1,286,914 5,726,303 7,013,218 688,764 1,955,728 2,644,492

Source: F/STM/ACR.

The tables with the details of the resource destination are attached at the end of the document.

22

VI) FINANCIAL ADMINISTRATION OF CASH AND DEBT

VI.1) FINANCIAL INVESTMENT OF CASH

The Municipal Treasury keeps the Municipal Direct Administration cash financial investment in assets

with low credit risk, primarily through exclusive investment funds and public government securities

- in such case only through committed operations added in them. The investment policy of the

Municipality is formalized through the SMF Resolution no. 2.672/2011.

The exclusive investment funds, managed by official institutions and leaders in assets management

market, presented an average profitability weighted by daily balances of 99.54% of the SELIC rate in

2013, while in the same period of 2012 it was 100.03% of SELIC - being concentrated in short-term

assets. The main factors that explain this variation were:

1. In the 2012 portfolio composition, there were still assets acquired under favorable conditions

(LTN and LFT), which performed very well at the start of that year;

2. These assets were expiring through the year of 2012, and due to the new market conditions,

there was no opportunity of acquisition of assets with the same performance. In this new

economic scenario, the government policy of detaching the public debt of interest rates by

reducing the LFTs may be highlighted, still in 2012;

3. The detachment of the CDI in relation to the Selic rate, over the year, which negatively

impacted the performance of the Financial Bills of federal banks, which are part of the

exclusive fund;

4. The instability in the external scenario, from March/2013, contributed to the strong volatility

in the fixed income market in Brazil.

Management rates of such funds continued to be reduced up to November, 2013, having reached

levels of 0.05% to 0.14% a year, according to the invested equity, corresponding to approximately

one quarter of the rates practiced in the beginning of this municipal management in 2009. It shall

also be highlighted the active management in the composition of the portfolio, taking advantage of

eventual opportunities and minimizing the impact of the adverse market conditions.

The financial revenues under responsibility of the Municipal Treasury (Direct Administration) made a

total of R$ 373 million in 2013, while in 2012 they were R$ 531 million. Such revenues basically

comprehend the remuneration of the investment funds and of the committed operations, in addition

to the earning from the savings accounts, and, in 2012, add the profit in the sales of bonds related

23

to the own portfolio (R$ 148 million)2. In 2013, the average total earning of cash under

administration of the Municipal Treasury was 95.1% of SELIC.

It shall also be emphasized that the reduction of the average of the interest rates applied in this

period (8.19% a.y.) that was smaller than the one of the previous period (8.54% a.y.) also

contributed to the reduction of the financial revenues in 2013, taking into account the Monetary

Policy adopted by the Federal Government. Also register that there was a small reduction of the

average cash applied of the Treasury Resources (3.5%).

The financial resources of companies, autarchies and foundations with their own treasury are

managed by the Financial Boards of each entity, and determined the application in investment

funds used by the Municipal Treasury or even products of the same credit risk. For its part, the

entities managed by Previ-Rio (including Funprevi and FASS) have their own investment policy,

approved by the Board of Directors, given the specificity of the pension sector, which has specific

regulations and prediction of independence in relation to sponsor management. The set of all these

municipal entities under own treasuries administration generated financial income of R$ 87 million

(including R$ 77 million of pension entities), which, together with the R$ 373 million recorded in the

Direct Administration, have amounted to R$ 460 million of financial revenues for the Municipality in

the year of 2013.

VI.2) FINANCIAL DEBT

The gross financial debt achieved R$ 10.6 billion, distributed by the creditors below:

TABLE XII - GROSS FINANCIAL DEBT STOCK

Creditor Balance in R$ thousand

(31/12/2013)

Yearly Average Charges (1) Last due date

Union in R$ (1 contract) 6,185,455 IGP-DI + 6.01% 2029

World Bank (1 contract) 2,442,387 US$ + 3.62% 2040

BNDES (2 contracts) 960,794 TJLP + 1.90% 2031

CEF (62 contracts) 506,892 UPR + 8.29% 2037

Union in R$ (3 contracts) 59,276 US$ + 4.37% 2024

CEF/Union in R$ (1 contract) 31,094 US$ + 5.50% 2029

BID (4 contracts) 472,858 US$ + 4.32% 2037

Eletrobrás (1 contract-Reluz) 6,296 IPCA-E + 9.50% 2015

Total (75 contracts) 10,665,052 Average Interest Rate =

5.12%

Average Duration = 7.0 years

(1) The Average Charges include nominal indexers, interest rate, fees and charges for credit risk.

2 The sales of own portfolio was completed in February, 2012 (see previous edition of this Report).

24

In relation to the internal operations, it was received in the current year portions of resources

already contracted before two national public banks, BNDES (TransCarioca, PMAT), and CEF

(Sanitation for All, ProHousing, PNAFM), in the amount of R$ 718 million.

Throughout the coming years, there will be additional releases of the funds already signed, in an

approximate total amount of R$ 2.8 billion to be added to the amount of the gross financial debt.

This amount includes balances receivable for the transport corridor TransCarioca (BNDES - R$ 235.8

million); the works of popular urbanization, of macro-drainage, and sanitation of Jacarepaguá and

Santa Cruz, and river dredging (Joana River) in the Maracanã region (CEF - total of R$ 624 million);

US$ 150 million of the Urbanization Program supported by the BID contract; and also, the R$ 1.1

billion for the Transbrasil transport corridor financed by CEF. Two fundings have already obtained

authorization of the National Treasury and on the date of this report they were in process for

signature: Rio of Excellence Project of US$ 16.2 million, to complement the technical assistance of

the World Bank in the areas of health, education, environment, and municipal management, and

Pro-Transportation Program (CEF - R$ 500 million). The financial profile of all such new operations

forecasts long term due dates, with periodical payments and beneficial interest rates in relation to

the national market, avoiding concentrations of expenditures.

The economy of expenditures with the loan with the World Bank, completed in 2011, that allowed

the reduction in the interests paid to the Union, already makes a total of R$ 1.1 billion since the

disbursement of the first installment by the Bank, occurred in August, 2010.

All debt indicators of the Fiscal Responsibility Law (LRF) and MP 2185-35 (which governs the

renegotiation of debts of municipalities with the Union) have presented major improvements since

the start of the current Management in 2009. As demonstrated by the table below, the City fulfills

with ease the debt thresholds of LRF and of MP 2185-35.

TABLE XIII - DEBT INDICATORS

Act Indicator Limit MRJ 2008 MRJ 2013

Resolution

Senate 40/2001

Net Consolidated Debt / Net Current

Revenue (RCL) annual

120% 58% / 79%(*) 47.42%

Resolution

Senate 43/2001

Average annual debt service up to 2027 /

RCL annual

11.5% 10.49% 6.56%

MP 2185-35 Total Gross Contractual Debt / Net Real

Revenue (RLR) annual

100% 118% 79%

NOTE: The figures presented on the debt contract with the Union regarded annual interests of 9.0% higher than the IGP-DI until 2009, an

effectively charged level to the Municipality by the National Treasury until 2010. From August 2010, such interest rate was decreased to

7.5% due to the partial pre-payment made by the City with World Bank resources, and legal actions active at the time (started on

previous fiscal years), with a petition for reduction or such interests to 6.0% a year were closed. In November 2011, the receipt of the

second part of the World Bank led to a new amortization by the Union and the interest rate is now definitely at 6.0%

25

(*) In 2008, the limit was calculated as 58%, but using the total of Cash Availabilities and Financial Receivables of the Social Security

Regime as part of the Total Cash of PCRJ which reduces the Debt. Such practice is not performed anymore in MRJ. Thus, the number of

Dec/07 for purposes of comparison with the most recent periods shall be interpreted as 79%.

The table below shows the ratings currently granted by the three main international rating agencies

for the Federal and Subnational governments of the country, showing that the City of Rio de Janeiro

is the only government that matches all ratings of the Federal Government.

TABLE XIV - RATINGS OF GOVERNMENTS IN BRAZIL (INTERNATIONAL SCALE) - FEBRUARY 2014

FITCH MOODY´S STANDARD AND POOR´S

BBB: Union, Municipality of Rio, State of

SP

BBB–: States of Rio, PR, SC

Baa2: Union, Municipality of Rio, State of SP

Baa3: Belo Horizonte, States of MG, MT, PR

BBB: Union, Municipality of Rio

BBB–: States of RJ, SP, MG, MT, PR, SC

Source: Websites of the respective agencies. The minimum levels for Investment Grade classification are BBB- (Fitch and Standard and

Poor's) and Baa3 (Moody's).

Regarding the perspectives of the ratings of the Municipality as published by the agencies, we have

an stable outlook in all. We continue highlighting that the Municipality, to the contrary of several

national banks and state companies, did not suffer a negative perspective change by S&P when such

change was published for the Union at the start of June 2013. Thus, at the date of this report, the

complete set of City ratings, considering all rates and its perspectives, are superior even to the

Union itself, a rare event for any country of the world.

26

VII) CONCLUSION

The budget result of 2013 ratifies the actuation standard established by Rio City Hall since 2009 -

which optimizes the use of the society's resources to the improvement of its life quality. In such

context, the reduction of participation of the expenditures with personnel and debt, and the strong

increase in expenditures with investments are emblematic - having to remind that the Municipality

allocated almost 20% of its final budget provision (R$ 4.4 billion) to the performance of investments.

In such context, over the year, among many other investments, we had: the release of resources for

Transcarioca, the contracting of the Implementation Project of VLT (Light Vehicle on Trails) of

Downtown Rio - through a Public-Private Partnership associated to PAC Big Cities Mobility -, works

of Urbanization of Precary Settlements in Morro da Providência, works of Containment of Slopes in

Risk Areas and the Environmental Recovery of Jacarepaguá Basin.

On the collection side, the growth of the Tax Revenues by 11.1% and of the Total Revenues by 11.7%

shows the resilience of Carioca economy and of the tax administration. PPI Carioca, a recovery

program of tax debts, deserves special highlight in 2013 by having allowed an increment in the

collection of ISS and IPTU of around R$ 1 billion (summing values in collection at the administrative

and judicial levels).

Finally, it is always convenient to mention the positive assessment of the municipal finances by the

three leading international credit risk assessment agencies (Fitch, Moody's, and Standard & Poor's).

All of them, on the date of this report, continued classifying the Municipality of Rio as of low credit

risk, and with the same ratings (investment grade) as of Union (BBB, Baa2, and BBB, respectively) -

fact that is unique at the moment to the Brazilian subnational governments (state and municipal).

Special highlight shall be given to the maintenance of the stable perspective of Carioca rating by

S&P at the time when such perspective was downgraded to negative in the cases of Federal

Government, of state companies, and of the main public and private banks, showing the financial

solidity of Rio City Hall, in a context of high expenditures with investments.

27

ANNEX

Table I - PAC I and II In R$ thousand

PAC I - OGU CEF 2007/2008/2009

USES AND SOURCES

TOTAL

PERFORMED IN 2013 TOTAL ACCRUED PERFORMED

PCRJ EXTERNAL PCRJ EXTERNAL TOTAL PCRJ EXTERNAL TOTAL |

Urbanization of Areas

Tijuca Complex 13,397 55,595 70,092 230 770 1,000 12,735 54,377 67,112

Juliano Moreira Colony 25,983 82,000 107,983 2,684 8,314 10,998 9,433 59,871 59304

SOE ICON/Centro l/ll 4,739 10,511 15,250 25 36 61 3,060 9,390 12,450

Manguinhos Complex 15,125 83,120 98,245 1,197 5,480 6,677 14,744 78,199 92,943

Alemão Complex 17,855 90,317 108,172 0 969 969 17,855 33,275 106,131

Vila Catiri - FNHIS 842 3,327 4,170 164 649 813 607 2,875 3,482

Fazenda Coqueiros-FNHIS 300 3,452 3,752 117 1,345 1,452 135 1,548 1,683

Tijuca -FNHIS 3,908 25,858 29,776 888 5,666 6,553 1,886 13,204 15,090

SUB-TOTAL Urbanization of Areas 82,150 355,290 437,440 5,304 23,227 28,531 60,455 307,741 368,195

Sanitation

Sepetiba 2,508 14,514 17,121 0 0 0 2,095 13,063 15,158

Lot 1A Jacarepaguá 5,515 123,785 130,300 2,244 63,056 65,300 4,684 112,375 117,050

SUB-TOTAL Sanitation 9,023 133,399 147,421 2,244 63,056 65,300 6,779 125,433 132,217

TOTAL PAC I- OGU 91,173 493,689 584,862 7,548 86,284 93,832 67,234 433,179 500,413

In R$ thousand

PAC II - OGU CEF 2011/2012/2013 USES AND SOURCES PERFORMED IN 2013 TOTAL ACCRUED PERFORMED

PC RJ EXTERNAL TOTAL PC RJ EXTERNAL TOTAL PC RJ EXTERNAL TOTAL |

Slope Stabilization Projects 0 375 375 0 0 0 0 375 375

Mangue/Trapicheiro Channel 22,575 141,720 164,395 0 6,942 6,942 11,106 15,474 26,580

Landslide Containment 2011 1,870 71,541 73,411 0 19,472 19,472 0 27,646 27,646

Morro da Providência 53,555 87,920 141,476 4,000 31,891 35,891 29,160 32,198 61,358

Chapadão/Chico Mendes 51,150 43,671 94,821 15,045 11,183 26,229 15,045 11,183 26,229

Landslide Cont. Centro/Tijuca 2012 0 95,474 95,474 0 0 0 0 0 0

Landslide Cont. North Zone 2012 0 123,756 123,756 0 0 0 0 0 0

Landslide Cont. Alemão/Penha 2012 0 83,490 83,490 0 0 0 0 0 0

Landslide Cont. West Zone 2012 0 45,432 45,432 0 0 0 0 0 0

Implementation Works of VLT Centro * 0 532,000 532,000 0 0 0 0 0 0

Olympic PAC - Handball Gymnasium 0 178,458 178,458 0 0 0 0 0 0

Olympic PAC - Tennis Center 0 182,071 182,071 0 0 0 0 0 0

Olympic PAC - Aquatic Gymnasium 0 219,557 219,557 0 0 0 0 0 0

Olympic PAC - Cycle Track 0 143,239 143,239 0 0 0 0 0 0

TOTAL PAC II - OGU 129,251 1,949,704 2,078,955 19,045 69,488 88,534 55,312 86,875 142,187 * The value only refers to the Union's portion. The portion corresponding to the private initiative in PPP VLT was excluded from total.

Source: F/STM/ACR.

28

Table II - PAC / CEP CREDIT OPERATIONS In R$ thousand

PAC - FGTS CEF

USES AND SOURCES TOTAL

PERFORMED IN 2013 ACCRUED PERFORMED

PC RJ EXTERNAL PC RJ EXTERNAL TOTAL PC RJ EXTERNAL TOTAL Urbanization of Areas 2007/2008

Reg. Fundiária Femão Cardim 23 445 468 3 57 60 23 445 468 A. Lima / S. Rodrigues 2,691 21,635 24,326 99 799 595 2,644 19,734 22,379 São Carlos 2,001 21,145 23,146 0 149 149 1,951 18,610 20,561 Nova Divineia and others 1,583 16,675 15,262 36 354 420 1,409 12,534 13,943 Guarabu 4,688 27,555 32,573 0 726 726 3,503 22,423 26,226 Areal 1,306 5,464 6,770 3 52 55 1,171 5,361 6,532 Vila Esperança 1,447 15,053 16,530 0 92 92 960 9,351 10,311 Vila Rica de irajá 2,275 22,292 24,567 0 398 395 2,032 18,113 20,145 João Lopes 933 5325 6,255 0 0 0 791 4,362 5,153 Parque Alegria 410 7,796 8,206 0 25 25 391 5,026 5,416 Vila Catiri 1,102 8,639 9,741 0 0 0 1,091 7,696 5,757 Urbanization of Areas 2010/2011 Juliano Moreira Colony 22,561 39,968 62,529 4,208 7,456 11,664 6,980 12,334 19,314 Babilônia and C Mangueira 61,040 39,524 100,864 0 607 607 13,066 19,076 32,142 Jardim do Amanhã - C Deus 7,513 35,572 43,685 714 3,227 3,941 732 3,309 4,041 Alemão Complex 17,408 59,989 77,396 7,340 24,461 31,500 7,618 25,427 33,044 Manguinhos Complex 5,473 29,862 38,336 1,765 5,762 7,527 1,530 5,995 7,525 Morro da Coroa 16,135 22,621 38,756 625 11,849 12,474 11,316 17,143 25,459 Guarabu Community 5,065 19,439 27,507 437 3,294 3,731 6,209 14,332 20,541

SUB-TOTAL Urbanization of Areas 159,958 399,962 559,920 15,230 59,340 74,570 64,016 221,271 285,287 Sanitation 2007/2008

Esgotamento P.Guaratiba 2,765 11,062 13,527 0 0 0 2,765 11,062 13,527 Parque Linear- Rio Acari 54,716 46,948 101,663 30,717 18,468 49,185 31,248 26,397 57,645

Sanitation 2012/2011 Lots 1B/ and 1C Jacarepaguá 40,355 195,493 235,551 6,683 94,496 101,179 21,253 104,425 125,709 Saneando Santa Cruz 73,456 207,246 250,701 13,236 45,090 55,326 24365 58,456 82,824 Canal Mangue/Rio Joana 7,545 143,200 150,745 2,593 48,169 51,062 3,905 52,056 55,964

SUB-TOTAL Sanitation 178,870 606,948 785,818 53,529 206,223 259,753 83,573 252,396 335,970

TOTAL PAC - FGTS 338,828 1,006,910 1,345,738 68,759 265,563 334,323 147590 473,667 621,257 Source: F/STM/ACR.

Table III - PAC URBAN MOBILITY/BNDES and CEF CREDIT OPERATIONS In R$ thousand

URBAN MOBILITY

USES AND SOURCES PERFORMED IN 2013 TOTAL ACCRUED PERFORMED PC RJ EXTERNAL TOTAL PC RJ EXTERNAL TOTAL PC RJ EXTERNAL TOTAL

PAC - WORLD CUP / BNDES 2010

BRT Transcarioca Corridor - BNDES 524,663 1,179,000 1,703,663 251,272 494,348 745,620 418,629 962,007 1,380,636

PRÓ-TRANSPORTE/ CEF 2013 BRT Transbrasil Corridor 203,000 1,097,000 1,300,000 0 0 0 0 0 0

TOTAL 727,663 2,276,000 3,003,663 251,272 494,348 745,620 418,629 962,007 1,380,636 Source: F/STM/ACR.