Itaú BBA - ARGENTINA – On-going fiscal deficit narrowing

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ARGENTINA – On-going fiscal deficit narrowing

October 22, 2018

We estimate the 12-month rolling primary deficit at 2.6% of GDP in September (from 3% as of June).

The federal primary fiscal deficit in September came in significantly lower than that registered one year ago. The treasury ran a primary deficit of ARS 22.9 billion, down from a deficit of ARS 31.4 billion in September one year before. As a consequence, we estimate the 12-month rolling primary deficit at 2.6% of GDP (from 3% as of June). The nominal deficit fell to 4.9% in September, down from 5.1% in June 2018.

Primary expenditure dropped in real terms aided by inflation. Expenditures fell 10% yoy in real terms in September (an increase of 26.5% yoy in nominal terms). A weaker peso and higher oil prices had an impact on energy subsidies (+35.4% yoy in real terms), forcing the treasury to intensify controls on other items, like capital expenditures (-15.8%), transfers to provinces (-22.4%), and payroll (-17.8%). Pensions (which are indexed to past inflation) decreased 14.8% yoy in real terms. Tax revenues decreased 7.6% in real terms in September (29.8% yoy nominal) in spite of higher export tax collection (87.8% in real terms), as new export duties became effective on that month. During the first nine months of the year, expenditures showed a 7.1% yoy decline in real terms, while taxes (excluding the extraordinary revenues linked to the tax amnesty collected early 2017) improved 1.8%.  

The government said the target agreed upon with the IMF for the first three quarters of 2018 was met. This fiscal target for that period (ARS 264.9 billion) includes expenditures and credits executed under the priority investment program (PIP), which are items not computed in the official definition of fiscal balance. The primary deficit run by the treasury was ARS 181.2 billion, including ARS 27.9 billion in the PIP. We expect a primary deficit of 2.6% of GDP this year, compared with a 2.7% target.

The Lower Chamber will likely start the discussion of the 2019 budget on Wednesday. The government is confident that it will have the necessary votes to pass the bill this week before the IMF board approves the new stand-by arrangement on Friday. The Senate is the next stop on the road to a final approval of the budget before year-end. The government targets a zero primary balance next year, in line with commitments with the IMF. Besides the re-introduction of export taxes, the government agreed with the opposition to an increase in the tax rate on individual assets to boost resources.
 

Juan Carlos Barboza
Diego Ciongo



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