Itaú BBA - ARGENTINA – Fiscal deficit widened in 3Q20

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ARGENTINA – Fiscal deficit widened in 3Q20

October 21, 2020

Our forecast for the primary fiscal deficit this year stands at 6.9% of GDP (from 0.4% in 2019).

The primary deficit widened in 3Q20 despite recovery of tax revenues. The treasury ran a primary deficit of ARS 167.2 billion in September, compared with a deficit of ARS 25.4 billion for the same month in 2019. The deficit, as in previous months, was mostly financed by the central bank. As a result, we estimate that the 12-month rolling primary deficit increased to 5.6% of GDP in 3Q20, from 4.2% in 2Q20. The nominal deficit reached 8.3% of GDP in September.

Tax revenues fell in real terms in 3Q20, but at a much slower pace than in 2Q20.
Tax collection was down 5.4% yoy in real terms in 3Q20, compared with -20.6% in 2Q20 when the lockdowns hit severely the economic activity. Total revenues (including non-tax revenues) dropped 10.7% yoy in real terms in 3Q20, from -25.1% in the previous period.

Expenditure growth decelerated in 3Q20, hand in hand with the extraordinary social programs.
Primary expenditures rose 16.5% yoy in real terms in 3Q20, from 30.1% yoy in 2Q20. Special programs to assist workers and companies during the lockdown led the expansion of total expenditures (557% yoy from 811% in 2Q20). Transport and energy subsidies increased 32.7% yoy in 3Q20, down from 63.6% yoy in 2Q20, led by transfers to CAMMESA (the wholesale electricity market clearing company), while transfers to provinces grew 33.4% yoy in 3Q20, down from 328.6% yoy in 2Q20. Payroll expenses continued to decline (-8.4% yoy in 2Q20, from -11.2% yoy in 2Q20), while pension payments decreased 2.2% yoy, after increasing 1.6% yoy in 2Q20.  

Our forecast for the primary fiscal deficit this year stands at 6.9% of GDP (from 0.4% in 2019).
We expect the four-quarter rolling deficit to widen further in 4Q20 despite an expected sequential recovery of activity and further deceleration in extraordinary spending. Monetary financing of the fiscal deficit in 2020 fuels expectations of higher inflation ahead and pressures the exchange market, despite widespread controls on dollar purchases.



Juan Carlos Barboza
Diego Ciongo



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