Nature loss and external vulnerability in Latin America: insights from Brazil’s balance of payments and exchange-rate risks

Published 13 April, 2026 Discussion Paper Economic & fiscal policy Nature

CETEx Discussion Paper Series: Land and Ocean — Paper 10

Nature loss and external vulnerability in Latin America – 825.91 Kb

Pressure on ecosystem services can reduce and destabilise export earnings, raise import costs and dependence, and tighten external financing through higher risk premia. In Brazil, several important activities for earning foreign exchange (FX) are dependent on nature, creating scope for feedback between ecological stress, financing conditions and currency volatility. This new brief from the Land and Ocean series explores these critical channels for understanding macroeconomic risks in Latin America and further afield, providing new insights into the impact of nature degradation on the balance of payments (BoP) and exchange-rate dynamics.

Policy implications

For policymakers in emerging markets and developing economies (EMDEs), the protection of important ecosystem services should be vital to a strategy for macroeconomic stability. Nature degradation can translate into BoP stress through export fragility and volatility, import-cost pressures (often via depreciation, and energy and logistics disruptions) and tighter external financing. In Brazil, deforestation-linked risks to hydrological regulation and rainfall have an especially significant macroeconomic impact because they sit upstream of major FX-earning sectors and can trigger market-access and reputational shocks.

There is an imperative to enhance risk-management by building buffers, improving information exchanges and reducing the probability that ecological shocks will force abrupt FX adjustments. To improve BoP resilience, policymakers could integrate nature-related risks into central bank and supervisory toolkits, fiscal and development planning, cross-government coordination and the international financial architecture.

This paper is part of the CETEx Discussion Paper Series: Land and Ocean, which aims to support financial and economic policymakers as they contend with and make considerations for environmental degradation issues, in addition to climate change. The papers have been written and peer-reviewed by leading experts from academia, think tanks and central banks and are based on cutting-edge research.

DOI: 10.21953/researchonline.lse.ac.uk.00137981