Brazil - Strengthening Fiscal Resilience to Climate Disasters through Disaster Risk Finance

Overview & Synopsis

Brazil faces a rapidly intensifying fiscal and economic threat from natural disasters, with floods emerging as the most recurrent and devastating hazard. Over the past two decades, floods have accounted for more than 90 percent of all reported damage to public assets. The estimated annual average loss (AAL) from flooding now reaches R 26.8 billion dollars (US 4.9 billion dollars), representing approximately 0.24 percent of GDP. Climate change projections suggest these losses could increase by 28 percent under a 2°C warming scenario and by 54 percent under a 3°C scenario, placing even greater strain on public finances and economic stability. The catastrophic floods that struck Rio Grande do Sul in 2024, with estimated damage considering losses and indirect macroeconomic impact of 0.76 percent of GDP, serve as a stark reminder of how unprepared public systems remain for such large-scale disasters. This policy note proposes a comprehensive framework for enhancing Brazil’s fiscal resilience to climate-related disasters by integrating Disaster Risk Finance (DRF) principles into fiscal policy and budgetary management. In particular, three priority reforms: Brazil needs to adopt a national DRF strategy that consolidates financial instruments and aligns them with fiscal risk management processes; the government could reduce public liability by promoting the development of private catastrophe insurance markets, enhancing regulatory frameworks, and supporting public–private partnerships to increase coverage; and the government can strengthen subnational resilience by improving access to contingent credit, creating state-level risk pools, and introducing federal co-financing mechanisms that incentivize proactive disaster management.