Impact of Pre-salt Investments across Sectors and Regions: A Pilot CGE Analysis

Resumo

New discoveries of oil and natural gas reserves off the coast of Brazil, known as the Pre-Salt fields, have reignited policy debates about the economic consequences of oil dependence, including issues related to upfront investments required to exploit the new underwater oil fields, the long term effects of rising oil production as a share of GDP, rising oil exports as a share of total exports, and rising oil revenues as a share to public revenues at the various levels of government. The present study, on Implications of Oil & Gas Discoveries, will assess the macroeconomic and microeconomic consequences of Brazil’s newly acquired natural resource riches. It will also explore options for addressing the policy challenges associated with those impacts, so as to maximize the potential net development gains from Pre-Salt.

Existing forecasts of the magnitude of these discoveries suggest that (a) Brazil was on track to becoming major oil producer and export even without the new discoveries, and (b) at the country level, the main challenge will probably be due to rising export concentration, but Brazil’s oil share in GDP and even in public revenues are not currently expected to be major concerns, at least in an international comparative perspective. However, dependence on oil revenues at the sub-national level might become a more pressing issue, depending on the regulatory framework that will eventually be decided upon. In light of these expectations, the study will focus its analytical efforts on issues related to optimal fiscal rules, export concentration and volatility, governance and distributional effects of the oil windfall, both across the income distribution and across regions. The latter topic is the focus of the present project.

The project will provide a pilot analysis of the impact of the investments of Petrobrás in the state of Espírito Santo. In particular, the project will assess the short, medium and long term impacts of these Pre-Salt related investments on the economy of the state, using a computable inter-regional general equilibrium model.