This report does not constitute a rating action. Overview Credit context and assumptions Base-case expectations Despite their gradual decline, high oil royalty revenue continues to support solid budgetary results. We expect a continued track record of prudent policy implementation, as seen across recent administrations. Substantial liquidity and a low debt burden provide strong fiscal buffers. Growth and diversification of the local economy could mitigate exposure to and volatility of the oil industry. A challenging framework for Brazilian local and regional governments (LRGs) is characterized by budgetary rigidities. High capital expenditure, to facilitate a broader local economy, are expected to be funded by a mix of borrowing and internal resources. Significant oil royalties, combined with responsible fiscal management, have facilitated the
