Brazil's Supreme Court endorses drought and wildfire spending, without hitting fiscal target

By Marcela Ayres

BRASILIA (Reuters) - Brazil’s Supreme Court on Sunday authorized the government to exempt spending on wildfires and droughts in the Amazon and Pantanal regions from this year’s fiscal target as the country grapples with the economic impacts of its worst drought on record.

The decision by Justice Flavio Dino effectively clears the way for the government to take action if it submits an executive order to Congress requesting extraordinary measures to address the situation.

According to the National Center for Monitoring and Early Warning of Natural Disasters (Cemaden), the current drought is the most intense and widespread in Brazil since records began in 1950, exacerbated by a weak rainy season in the north-central region, rising atmospheric temperatures, and land-use changes, with forest areas being replaced by pastures.

Record wildfires have swept through the Amazon and Pantanal regions, as well as other parts of the country, while the severe drought has hindered navigation along the Amazon’s waterways, with low water levels isolating some communities and disrupting soybean and corn shipments from central-western states like Mato Grosso, Brazil’s top grain-producing area.

Justice Dino also authorized the government to bypass a legally mandated waiting period for hiring temporary firefighters and ordered a federal police fund to allocate resources to prioritize investigations into wildfires.

Earlier this year, the government had already exempted spending on unprecedented floods that hit the southern state of Rio Grande do Sul in May, highlighting the growing burden of climate events on public finances.

Spending on Rio Grande do Sul has so far totaled 27 billion reais ($4.85 billion) and will not be considered when assessing the government's target to eliminate this year's primary deficit.

While Dino’s ruling allows potential expenses to bypass a spending cap established by new fiscal rules and exempts them from the fiscal target calculation, they would still contribute to the growth of Brazil's public debt, which is already considered high compared to other emerging markets.

($1 = 5.5625 reais)

(Reporting by Marcela Ayres; editing by Diane Craft)