From Fiscal Reform to Forest Revival: The Amazonas Blueprint for Sustainable Growth

Imagine a place that holds nearly one-tenth of the planet’s remaining tropical forests, an expanse larger than France, Spain, and Portugal combined. This is Brazil’s State of Amazonas, the heart of the Amazon rainforest, where 96% of its 1.5 million square kilometers remain covered by native forest vegetation. The annual ecosystem services by the Brazilian Amazon for the Brazilian economy —agriculture, water, climate control, and biodiversity, among others—are valued at US$317 billion per year.

Yet, Amazonas is more than a natural wonder; it is an economic powerhouse, with a GDP of US$27 billion in 2024. The state has long sought to balance forest protection with poverty reduction, but persistent challenges remain. Limited resources and operational systems have made it difficult for the government to fully meet the needs of its communities, especially in remote areas where public funding and infrastructure are lacking.

Recent years have brought urgent threats. The Amazon faced its worst droughts in decades in 2023-24 drying rivers, disrupting food and water supplies, and forcing the closure of over 1,700 schools and 760 health centers. Wildfires rose by 30%, and the economic cost is estimated at 1.5% of GDP, alongside major impacts on health, jobs, forests, and biodiversity. Meanwhile, drug trafficking and organized crime affect 40% of municipalities, complicating governance and weakening policy enforcement.

Faced with these intertwined challenges, Amazonas and the World Bank have stepped up their efforts to respond and together had launched a bold and innovative US$585 million program to turn fiscal reforms into forest protection as it aligns its financial systems with environmental goals, demonstrating that economic policy and environmental stewardship can reinforce each other.

“In partnership with the World Bank, we have presented one of the most innovative models of climate finance and fiscal governance in the world. Through this initiative, the Government of Amazonas has created fiscal space for strategic investments in the bioeconomy and in strengthening the State Environmental System, including the first public recruitment process in the history of State Secretariat for the Environment, SEMA.”

Eduardo Taveira, Secretary of Environment, State of Amazonas.

The Amazonas Fiscal, Economic, Social, and Environmental Sustainability Program Development Policy Financing (DPF)  directly addresses the region’s needs by:

• Rewarding sustainability: Municipalities and businesses that protect forests or invest in bioeconomy value chains, start –ups and associations, are now receiving fiscal and financial incentives, including tax breaks and targeted transfers. The State introduced an Ecological Tax on the Circulation of Goods and Services (ICMS Ecológico) that distributes revenues based on environmental performance, alongside new voluntary transfers that reward conservation results or compensate climate exposed municipalities.  This helps channel resources to those who are actively safeguarding the forest.
• Strengthening institutions: Structural changes in natural resource management require stronger institutions. Under the new DPF, the State approved long-awaited legislation enabling institutional reforms of key environmental agencies, State Secretariat for the Environment, SEMA and Amazonas State Environmental Protection Institute, IPAAM—reforms that had been pending for more than 15 years. These changes will expand the State’s environmental workforce more than tenfold: permanent staff at SEMA will grow from 14 to 180 positions (over 1,100%), and at IPAAM from 141 to 281 positions (nearly 100%). Over 300 new professionals will now support environmental control, licensing, protected areas management, and inspection. The reforms also introduce structured career paths to attract and retain talent , marking a turning point for Amazonas’s capacity to enforce regulations and safeguard one of the world’s largest carbon sinks and most biodiverse forest systems.
• Creating legal infrastructure for carbon revenues: New laws enable the state to oversee and sell carbon credits earned from protecting forests, potentially generating $400–800 million in revenue. This innovation turns environmental stewardship into a source of fiscal strength.
• Reinforcing accountability: The program introduces higher fees, increased efficiency, and better targeting of environmental infractions, making it easier to combat damaging activities and enforce regulations.

By advancing fiscal management and restructuring debt, the operation is expected to free up to  $300 million in fiscal space over the next five years, resources that will sustain green reforms, create jobs, and promote low-carbon growth. Preliminary results are promising, with support from previous World Bank financing, deforestation dropped from 3,047.6 km² in 2022 to 960.8 km² in 2024, maintaining a downward trend expected to continue in 2025.

This is the first project in the Amazon region to use the World Bank’s Framework for Financial Incentives (FFI), which provides financial rewards for actions that benefit not only Amazonas but also cross-border neighboring regions, including efforts to fight climate change, protect nature, and help communities adapt to new challenges. Under this framework, the State will receive a $22 million grant if clear goals related to reducing deforestation and strengthening environmental agencies are achieved.

“More than an isolated achievement, this is a model that can be replicated by other states, municipalities, and regions facing similar challenges. Amazonas demonstrates that, with innovation and fiscal responsibility, it is possible to prioritize strategic areas for sustainable development.”

Eduardo Taveira, Secretary of Environment, State of Amazonas.

The people of Amazonas are charting a new course—one that blends fiscal sustainability with an ambitious environmental vision, and local resilience with global relevance. By linking fiscal sustainability to environmental results, Amazonas is forging a path where economic growth and forest protection reinforce each other. This ambitious program shows that even in a region as vast and complex as the Amazon, smart policy design, strong institutions, innovative finance, and commitment can turn sustainability into a reality.