Amazona’s First Amazonas Fiscal and Environmental Sustainability Programmatic Development Policy Financing in Brazil
Start & End Date: 2020-2022
Country/Countries: Brazil
Multilateral Institution(s) Involved: World Bank
Case Study: Available
The state of Amazonas’ enormous natural capital coexists with high poverty and unemployment. Amazonas, Brazil’s largest state, hosts one quarter of the whole Amazon basin and about one third of its Brazilian part. With 1.5 million km² (an area larger than France, Germany, Spain, and Portugal combined) and over 96 percent of its original forest cover preserved, the state of Amazonas has the largest forest carbon stock of any subnational jurisdiction in the world. Yet, despite being naturalresource-rich, the state has one of the highest levels of poverty in the country, with nearly 40 percent of its population living under US$5,50/day (2011 PPP). Annual deforestation in the state of Amazonas has increased in recent years, growing from 583 km² in 2014 to 1,434 km² in 2019, a 146 percent increase. If the same trend was maintained, annual deforestation could reach 3,528 km2 by 2025, equivalent to a cumulative loss of natural forests the size of Belize in five years. Reversing this trend is of critical local, national, and global relevance to preserve tropical rainforest, freshwater resources, biodiversity, and ecosystem services that support rainfall vital for agriculture, hydropower, and urban populations across South America, including in Brazilian central and southeastern states that form the country’s agricultural powerhouse. Just by achieving its deforestation reduction target in the Amazonas state forests, the operation would support the reduction of GHG emissions by 139 MtCO2 by 2025, representing about 11 percent of Brazil’s NDC target.
The proposed Fiscal and Environmental Sustainability Development Policy Financing (DPF) for the state of Amazonas supports fiscal discipline, climate-informed decision making, and an integrated approach to forest conservation and development to help the State improve its recovery after COVID-19 and protect the Amazon forest. Against the backdrop of the impact of COVID-19 and the recent increase in deforestation in the Amazon, this US$200 million DPF (the first in a two-DPF programmatic series) is an entry point for World Bank policy engagement on the medium-term reform agenda of the state of Amazonas to rebuild better after COVID-19, by promoting fiscal sustainability and by supporting the conservation and sustainable management of the state’s forest resources. The objective of the project is to support the state of Amazonas in strengthening fiscal sustainability and integrating forest conservation and development. The policy and institutional reforms supported by this programmatic Development Policy Finance series are 1) Strengthening Fiscal Sustainability. While the state’s debt stock is relatively low, fiscal sustainability is hindered by a large pension deficit, rapid wage bill growth, and poor quality of public investment. 2) Integrating Forest Conservation and Development. While Brazil has a robust environmental legislation, its implementation is uneven. The operation seeks to address regulatory loopholes, institutional gaps and incentives for climate-friendly investors and poor communities to use sustainably the state’s forest resources. The project integrates preserving biodiversity with the country’s need to build back after the Covid-19 pandemic. It supports fiscal adjustment and sustainable low-carbon and climate-resilient development. Furthermore, the Bolsa Floresta Familiar component provides payments to women that are heads of family or spouses of the head of family with the most direct effect on poverty, as well as on closing gender gaps. These payments represent a significant income boost for potential beneficiary households when committing to zero deforestation.