Itaú BBA - ARGENTINA – Fiscal deficit continued to widen in July

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ARGENTINA – Fiscal deficit continued to widen in July

August 21, 2020


Lower revenues and higher social expenditures are driving the fiscal deficit deeper. The treasury ran a primary deficit of ARS 155.5 billion in July, compared with a small surplus of ARS 4.3 billion in the same month of 2019. We estimate that the 12-month rolling primary deficit as of July increased to 4.8% of GDP, from 4.2% in June. The nominal deficit reached 7.5% of GDP.

Tax collection remains subdued amid still weak activity. Tax collection was down 11.8% yoy in real terms, falling at a pace similar to June (-11.7% yoy). VAT collection, which is sensitive to activity, declined 26.0% yoy in July, from -11.7% yoy in the previous month. Total tax revenues were supported by the increased collection of taxes on USD purchases by individuals (73.7% yoy in real terms). Total revenues (including non-tax revenues) dropped 18.5% yoy in real terms, down from 24.5% in the previous month.

Expenditures increased in July, but at a slower pace than in previous months. Primary expenditures rose 11.8% yoy in real terms in July, down from 20.9% yoy in June due to a deceleration in the pace of increasing energy and transportation subsidies (0.8% yoy vs  32.9% in June), transfers to provinces (13% yoy vs 163.2% in June) and special programs to assist workers and companies during the lockdown (504% vs 776%). Payroll expenses and pension payments continue to decline in real terms in July (-0.7% yoy and -6.3% yoy, respectively). 

Our forecast for the primary fiscal deficit this year stands at 6.8% of GDP (from 0.4% in 2019), assuming a gradual sequential recovery of activity and some reduction in special programs during the pandemic.

Juan Carlos Barboza
Diego Ciongo


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