Itaú BBA - ARGENTINA – Lower-than-expected primary deficit in October

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ARGENTINA – Lower-than-expected primary deficit in October

November 24, 2020

We forecast a primary deficit of 6.9% of GDP this year, up from 0.4% in 2019.

The recovery of tax revenues helped to moderate the fiscal deficit. The treasury ran a primary deficit of ARS 82 billion in October, compared with our call of ARS 100 billion deficit. One year ago, the treasury posted a surplus of ARS 8.5 billion in October. As a result, we estimate that the 12-month rolling primary deficit increased to 5.9% of GDP in October from 5.6% in the previous month. The nominal deficit hit 8.3% of GDP in October.

Sequential rebound in activity led to a smaller drop in tax collection, measured in real terms. Tax collection was down 1.9% yoy in real terms in the quarter ended in October (-5.4% yoy in 3Q20), in line with the rebound in activity amid the easing of lockdowns. Total revenues (including non-tax revenues) dropped 6.5% yoy in real terms in the same period, from -10.7% yoy in 3Q20.

Expenditures kept their pace of expansion in real terms, driven by extraordinary social programs and subsidies. Primary expenditures rose 16.9% yoy in real terms in the quarter, slightly above the increase posted in 3Q20 (16.5% yoy) and despite further reductions in non-Covid-related expenditures. Transport and energy subsidies increased 66.2% yoy in the period, up from 32.7% yoy in 3Q20, led by transfers to CAMMESA (the wholesale electricity market clearing company), while transfers to provinces grew 60.4%, up from 33.4% yoy in 3Q20. Special programs to assist workers and companies increased 409% yoy, from 557%. All other expenditures were flat or fell. Payroll expenses fell 11.6% (from -8.4%), while pension payments increased 0.3%, after falling 2.2% in 3Q20.  Finally, capital expenditures fell 24.6% (-19.9% yoy in 3Q20). 

We forecast a primary deficit of 6.9% of GDP this year, up from 0.4% in 2019. The government expects to roll over the debt payments (mostly in pesos) in the domestic capital market during the remainder of the year, while the primary deficit will likely be financed through transfers of dividends from the central bank. 



Juan Carlos Barboza
Diego Ciongo 



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