Municipal fiscal sustainability in the face of climate disasters: An analysis of the 2024 floods in southern Brazil

Abstract

Natural disasters are becoming increasingly frequent, as evidenced by the catastrophic floods in 2024, which marked the worst disaster in the history of Rio Grande do Sul, Brazil. This article explores fiscal sustainability through the budgetary capacity of municipalities in Rio Grande do Sul within the framework of Brazilian fiscal federalism. To assess this capacity, an indicator was employed to measure the proportion of current revenues allocated to current expenses and investments, alongside the degree of autonomy in resource transfers. The findings reveal significantly constrained fiscal sustainability among municipalities in Rio Grande do Sul, hindering their ability to respond to climate events in the region. Of the 453 municipalities analyzed, only 19% demonstrated sufficient budgetary space. Among those officially declared in a state of calamity, a mere 10% were eligible for a budgetary response. The economic losses associated with the disaster are estimated at 88.9 billion BRL, while collectively the municipalities of RS dedicated 5.6 billion BRL to investments in 2023. Given limited fiscal capacity and the enormous scale of losses from natural disasters, this article argues for financial solutions aimed at prevention and mitigation, involving federal cooperation and greater budgetary and financial commitments at the national level.