Debate in Minas Gerais exposes fiscal fragility and the risk of tax exemptions in an election year

The electoral debate in Minas Gerais has highlighted a key concern for capital markets: the use of tax exemptions as a campaign tool amid severe budgetary constraints. As candidates challenge current benefit policies, investors face the risk of policy reversals, which creates legal uncertainty and cash flow unpredictability for beneficiary companies. With the commercial dollar trading at R$ 5.2236, up 2.12% over the last 7 days, fiscal risk perception in strategic states like Minas Gerais puts pressure on Brazil's risk premium, increasing the cost of capital for the regional productive sector. The Brazilian economy faces a complex moment with the Selic rate at 14.00% p.a. and no signs of cooling in future interest rate curves. Pressure on state coffers, evidenced by the questioning of exemptions, comes as revenue maximization is critical for debt servicing. The dollar's upward trend, accumulating a 0.73% gain over the last 30 days, shows international markets are sensitive to fiscal imbalances, which could affect the state's credit rating and national business confidence. Clareza Capital notes this as the seventh consecutive negative report on political noise affecting asset pricing, similar to patterns in São Paulo and Rio de Janeiro. Applying the credit and liquidity cycle theory, the state is in a contraction phase where capital costs are prohibitive for risky fiscal maneuvers. Investors face uncertainty regarding the continuity of tax incentives; if a new government drastically revises them to balance the budget, companies reliant on these benefits may see a sudden deterioration in profitability. With 12-month IPCA at 4.44%, there is minimal margin for error, and increased tax burdens will likely be passed to final prices or lead to reduced investment. Over the next 180 days, volatility is expected for companies exposed to the Minas Gerais market, with short-term risk premiums remaining elevated until fiscal clarity is achieved.