Rio de Janeiro's governor has declared a state of financial emergency and requested federal funds to help fulfill obligations for public services during the Olympics that start on August 5.
Emergency measures are needed to avoid "a total collapse in public security, health, education, transport and environmental management," a decree in the state's Official Gazette said on Friday.
Rio de Janeiro state is in financial straits due to the fall in global oil prices, while Brazil overall is floundering through a deep recession.
Police, teachers and other government workers in Rio state have seen paychecks delayed because of the cash crunch. Retirees have protested because of unpaid pensions.
Since late last year, the state has also been forced to shutter some schools and hospitals, where crucial supplies, including medicines and syringes, are lacking.
"There are occupations, protests and demonstrations every day here," Al Jazeera's Adam Raney reported from Rio de Janeiro.
"People come out, block streets, do sit-ins because they are fed up with the corruption and deterioration of all of their public services."
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The announcement followed this week's visit to Rio by Brazil's Interim President Michel Temer, who said the federal government would ensure all obligations are met for a successful Games.
Rio is expecting about 500,000 foreign visitors during the Olympics, which has coincided with Brazil's worst recession since the 1930s and a political crisis that last month led to the suspension of President Dilma Rousseff.
"The state's financial emergency in no way delays the delivery of Olympic projects and the promises assumed by the city of Rio," Mayor Eduardo Paes said on Twitter.
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The financial pinch resulted in a 30-percent cut in the state's security budget - just as Rio has seen a jump in homicides and assaults in recent months, raising concerns about safety ahead of the Olympics.
Amnesty International expressed concern at the cuts to social services, which could affect the training of security agents to work in the crime-ridden slums known as favelas.
The decision to cut services and security ahead of the Olympic Games "is not only a shock but is also incredibly worrying, especially given the bad history of police killings and murders," Amnesty's Brazil director, Atila Roque, said in a statement.
Rio's state budget shows a $5.6bn shortfall for 2016. Royalties from oil - the state's main revenue-earner - are projected to collapse from $3.5bn in 2014 to just $1bn this year.
But the federal budget is in no better shape.
Brazil's primary fiscal deficit is forecast to be around $47bn. And the government is confronted with double-digit inflation, unemployment at a record 11 percent.
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On Wednesday, Fitch Ratings downgraded Rio's debt rating to "B-" from "B+", saying the state was suffering "a fast-deteriorating liquidity position".
Brazil is also facing an outbreak of the Zika virus, which has been linked to the birth defect microcephaly in which babies are born with abnormally small heads frequently associated with developmental issues.
The August 5-21 Olympics and September 7-18 Paralympics in Rio de Janeiro will be the first to be held in South America.
Source: Al Jazeera and agencies