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ARGENTINA – Fiscal deficit continued to narrow in July

August 21, 2018

Continued efforts to cut expenditures offset weaker revenue performance in July.

The treasury showed a lower primary fiscal deficit in July than in the same month one year ago. The treasury reported a primary deficit of ARS 14.3 billion in July, below the ARS 22.1 billion deficit registered in the same month of 2017. We therefore estimate that the 12-month rolling primary balance fell to 2.8% of GDP, from 3.1% in the previous month. The nominal deficit remained unchanged at 5.2% of GDP, but is still lower than the 6.0% of GDP deficit reported in 2017.

Continued efforts to cut expenditures offset weaker revenue performance in July. Expenditures fell 9.2% YoY in real terms (a 19.1% YoY increase in nominal terms). The treasury reduced capital expenditures by 19.2% YoY (in nominal terms) and maintained transfers to provinces almost flat at 0.5% YoY. This offset the 17.9% increase in energy subsidies (due to a weaker ARS, higher oil prices and a cold winter) and the 25.7% increase in pension payments (indexed to past inflation). Payroll rose 18.2% from July 2017. Total revenues fell 4.3% in real terms in July (a 25.6% increase in nominal terms), affected by weak tax collection (-9.9% in real terms due to base effects and the economic recession). During the first seven months of the year, total revenues (excluding extraordinary revenues linked to the tax amnesty in early 2017) still improved by 3.1% in real terms, while primary expenditures fell by 6.1% YoY. 

The treasury recently announced a battery of fiscal measures to boost the credibility of the primary deficit targets (2.7% of GDP for 2018 and 1.3% of GDP for 2019). The package includes a 66% reduction in export rebates, a temporary six-month suspension of the scheduled reduction in export duties on soy oils and soybean flours (the reduction scheme for soybeans was maintained), and the elimination of the Federal Solidarity Fund (the transfer of 30% of all collected export duties on soybeans to provinces). The decision supports our view that the fiscal deficit targets, while challenging, are feasible.

 

Juan Carlos Barboza
Diego Ciongo



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