Modelling the macroeconomic impact of Brazil's ecological transformation plan: a stock-flow consistent approach

In 2023, the Brazilian government launched the Ecological Transformation Plan (ETP), a new development strategy aimed at promoting environmentally sustainable economic growth while enhancing productivity and social equity. This paper evaluates the macroeconomic impacts of the ETP's financial policy mix, by developing a stock-flow consistent model. The analysis focuses on representing the policy mix embedded in the ETP—particularly its financial instruments—and evaluating its implications for investment, growth, and macroeconomic stability. A key contribution of the paper is the explicit modelling of financing mechanisms designed to mitigate currency risk, a structural constraint that affects many EMDEs and limits the scalability of low-carbon investments. By incorporating these features into an SFC framework, the paper provides new insights into how financial structures and policy interventions interact with real economic dynamics. Simulations through 2030 indicate that the ETP is expansionary, with projected GDP growth rising up to 1.6% and the creation of 360,000 to 900,000 new jobs. While the plan improves the primary fiscal balance by increasing tax revenues, it introduces specific trade-offs: the reduction in unemployment may prompt the Central Bank to raise the Selic rate to curb inflation, and increased demand for capital goods is expected to widen the current account deficit by 0.2–0.4 p.p. of GDP.