Consultancy estimates that measures announced by the federal government for the state total R$12bn, but amount could grow

20/05/2024

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Arroio do Meio, in the Taquari Valley, will need to rebuild as the river waters recede; floods claimed 157 lives and 88 people are still missing — Foto: Gustavo Mansur/Palácio Piratini

The impact of measures to aid Rio Grande do Sul on the central government’s primary accounts should be between 0.6% and 1% of the Gross Domestic Product, which would mean a spending of up to R$117.8 billion considering a proactive administration. These are the projections of a study carried out by BRCG consultancy and reviewed by Valor.

According to the consultancy, being a proactive administration means acting more to aid than in previous emergency events, such as the landslides due to heavy rains in the mountainous region of Rio de Janeiro in 2011. The study says that, if the federal government follows the pattern seen in other disasters, primary spending will be around R$70 billion, equivalent to 0.6% of GDP.

In the context of more conservative government action, spending would be R$48.4 billion or 0.4% of GDP. On the other hand, with a more active government, it could reach R$117.8 billion, equivalent to 1% of GDP.

“Even a scenario of moderate government action would have a relevant impact. Therefore, the estimated spending, in any scenario, is significantly higher than the amount announced by the government, of R$12 billion,” economists Matheus Ribeiro and Lívio Ribeiro wrote in the report.

“For now, the government is being cautious or timid, and that’s not that bad,” they say.

However, the economists point out that primary spending will comply with the rules set in the fiscal framework, “which will accelerate the increase in public debt.”

“Whatever [spending] has a primary impact will have an impact on the debt, whether or not it falls outside the framework. There is the primary [spending] considering the [fiscal] framework, and the difference between revenue and primary spending which, ultimately, is what increases debt,” Mr. Ribeiro told Valor.

In the study, the economists disregard the impacts from the revenue perspective, whether related to delays in tax collection or changes in the tax base.

Measures with no effect on primary spending, such as the use of the Workers’ Severance Fund (FGTS), multilateral loan facilities, or suspension of the Rio Grande do Sul state debt payment to the federal government, were also excluded from the study.

BRCG points out that the extent of the tragedy remains to be known and will only be determined when the water recedes. “However, it is clear that this is the biggest natural catastrophe in Brazilian history; its humanitarian, economic, and social cost will be very high,” the report says.

On Sunday (19), the Rio Grande do Sul government reported that the floods that started at the end of April killed 157 people, and 88 are still missing. More than 20% of the Rio Grande do Sul population (2.34 million people) was affected by the storms and 582,000 people were displaced from their homes—77,000 are in shelters.

The forecast is for more heavy rain in Rio Grande do Sul from Tuesday (21).

The measures announced by the government in recent weeks total around R$62 billion, according to the consultancy—R$12 billion are of primary impact. The numbers, however, are expected to increase, according to the economists’ projections.

Their estimates were based on similar events, such as the one in the mountainous region of Rio de Janeiro, the dam burst in Brumadinho, Minas Gerais, in 2019, and Hurricane Katrina, in the U.S., in 2005.

“Hurricane Katrina is the extreme climate event most close in proportion to what we will likely see in Rio Grande do Sul. The area receiving aid from the U.S. government was approximately 11% larger than the area affected in southern Brazil, although the population impacted is about 60% larger,” the economists wrote in the report.

“The comparison may get closer, depending on the number of municipalities in Rio Grande do Sul declaring a state of emergency.”

Estimated spending in infrastructure and environmental recovery in the consultancy’s report is based on information on the area affected by previous disasters, as well as the impact on material capital and the environment.

The damage caused by Katrina was estimated at 1% of the U.S. GDP in 2005, according to the National Oceanic and Atmospheric Administration, equivalent to 6.1% of Brazilian GDP that year, BRCG compares.

“In 2005, the U.S. government approved spending about 0.8% of GDP, or 4.9% of Brazilian GDP currency-converted, aimed at recovery following the hurricane. In the first 16 months after the catastrophe, spending was around 0.3% of U.S. GDP or 1.8% of Brazilian GDP,” the economists point out.

Landslides due to rains in the mountains of Rio de Janeiro, in turn, caused damages of R$7.9 billion, at current prices, in addition to related losses amounting to R$1.9 billion.

In the Brumadinho disaster, caused by a Samarco dam burst, Vale—one of the owners of the company—reached an agreement in 2021 with the Minas Gerais government at 0.4% of that year’s GDP (or R$37.7 billion) for repair and compensation.

As these are events of a different nature and magnitude, economists rely on hypotheses to estimate the numbers related to the disaster in Rio Grande do Sul.

In the case of infrastructure and housing spending, 40% of the works are expected to occur in the first year after the floods, with 50% backed by the federal government.

To measure environmental recovery spending, they consider non-compensatory payments incurred by Vale in Brumadinho. It is assumed that spending per square kilometer would be the same in Rio Grande do Sul, with a variation of around 25%.

The BRCG estimates for health and sanitation spending are based on amounts allocated by different levels of the federation during the COVID-19 pandemic.

Although the two situations are different, the economists argue that the pandemic was “an extreme and recent event in which public authorities were called upon to act and faced a prolonged state of emergency.” For now, the consultancy’s study considers the federal government’s health spending and projects that per capita spending in the affected municipalities could grow 40% to 60%.

Amounts involved in policies aimed at credit, job protection, and income transfer are based on the draft of similar policies adopted in the previous events analyzed.

For estimating credit, for example, the study considers per capita spending with credit fund quotas and payroll financing in the first year of the pandemic.

Regarding measures to maintain employment rates, BRCG consultancy works with a scenario of replication, until the end of 2024, of the Employment and Income Maintenance Benefit (BEm) program by the federal government. The program was created to maintain employment during the pandemic by reducing working hours and salaries.

Estimates for social spending consider the reconstruction aid (a R$5,100 voucher via the Brazilian instant payment pix), with the possibility of adopting a type of emergency aid of R$600 or minimum wage for people affected by the disaster.

“The package announced by the government should be reviewed and extended over the coming weeks and months. Furthermore, most of the measures will likely last well beyond the end of 2024,” the report points out. Even the Fiscal Recovery Regime of Rio Grande do Sul, which has already been made more flexible, with postponement of payments to the federal government, could undergo further renegotiations in the coming months.

*Por Marsílea Gombata, Rafael Vazquez — São Paulo

Source: Valor International

https://valorinternational.globo.com/