Revenue could rise by R$ 104 billion with the rise in oil prices, points out FGV Ibre

The rise in oil prices could represent a significant "fiscal bonus" for Brazil. Calculations by FGV Ibre (Brazilian Institute of Economics of the Getulio Vargas Foundation) indicate that, if Brent prices remain at around US$100 per barrel until the end of the year, the Union's revenue could exceed R$100 billion.

On the other hand, the increase in the commodity also puts pressure on the prices of fuel and fertilizers, relevant items in the country's production process.

In an interview with CNN Money, Manoel Pires, associate researcher and coordinator of the Fiscal Policy Observatory at FGV Ibre, explained that Brazil has undergone, in the last two decades, an important transformation in its position in the oil market.

"Brazil came out of a situation in which it was not a major oil producer and became a major producer," said Pires.

As a result, every time the price of a barrel rises, the value exported increases, external accounts improve and government revenue increases significantly.

Inflationary risk and compensatory measures
The scenario is not without risks. Pires highlighted that the rise in oil prices has a negative redistributive effect on the economy, since energy is an essential input for production and, consequently, for consumer prices.

"On one side, you have the benefit, which is government revenue; on the other side, you have this inflationary risk", he pointed out.

The researcher noted that the government has tried to manage this equation by using extraordinary revenue to reduce taxes on fuel and subsidize the prices of gasoline and diesel.

Regarding the lag in Petrobras' prices - estimated at around 49%, with an adjustment need of approximately R$1.76 -, Pires assessed that the R$0.89 subsidy announced was not yet included in the most recent calculations, as the provisional measure was still in the implementation process.

According to him, after the subsidy is implemented, Petrobras will probably need to evaluate an additional adjustment in gasoline prices to reduce the remaining gap and avoid significant losses with its pricing policy.

Space for Selic cut and monetary policy
The FGV Ibre report also estimates a potential impact of 0.9 percentage points on the IPCA (Broad Consumer Price Index) in the event of transfers of oil derivatives. Pires acknowledged that this scenario reduces the space for cuts in the Selic.

"The space to cut interest rates has actually become a little smaller," he said. For him, given the high uncertainty, it makes sense for the BC (Central Bank) to adopt a cautious stance, collecting more information before making decisions on monetary policy.

The researcher highlighted that, without the compensatory measures adopted by the government, inflation would be considerably higher and the monetary debate would be completely different.

Energy transition and structural perspective
When asked about the risk of Brazil postponing structural decisions on the energy transition agenda due to the revenue generated by oil, Pires was categorical in dismissing this fear.

He highlighted that the apparent consumption of products linked to petroleum, such as gasoline and diesel, has not increased in Brazil in recent years, precisely due to the gradual replacement by inputs such as biodiesel and ethanol, in addition to the advancement of the green hydrogen agenda.

"The success of these energy diversifications is greatly benefiting Brazil, even in situations like this", he concluded.

Despite the favorable scenario in the short term, Pires reinforced that the fiscal issue is a structural problem for the country and that, once the electoral cycle is over, the resumption of a more effective fiscal agenda is expected, especially from 2027.

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Source: CNN