Itaú BBA - ARGENTINA – Slight reduction of primary fiscal deficit in January

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ARGENTINA – Slight reduction of primary fiscal deficit in January

February 23, 2021

We forecast a reduction in the primary fiscal deficit to 4.5% of GDP this year.

The Treasury ran a primary surplus of ARS 24.1 billion in January, from a deficit of ARS 3.8 billion a year earlier. As a result, we estimate that the last twelve-month primary deficit fell slightly, to 6.4% of GDP from 6.5% in December2020. We estimate that the cumulative nominal deficit contracted to 8.2% in January from 8.5% of GDP in the previous month, helped by lower interest payments following the debt restructuring that was concluded in September 2020.

Tax collection continued to decline, by 0.7% yoy in real terms in the quarter ended in January, but it was up from -5.6% in 4Q20, reflecting the economic recovery. Total revenues (including non-tax) dropped by 2.1% yoy in real terms during the period, from a decrease of 8.2% yoy in 4Q20.

Expenditures decelerated further in real terms in the three-month moving average as of January, following the dismantling of some extraordinary social programs and a decline in payments of wages and pensions. Primary expenditures rose by 7.4% yoy in real terms during the period, marking a slowdown from the increase of 9.7% yoy posted in 4Q20. Special programs to assist workers and companies increased by 33% in the quarter ended in January from 91%, while transfers to provinces expanded by 10% yoy (from 43.1% yoy in 4Q20). Payroll expenses fell by 4.7% yoy (following a decline of 10.1% in the quarter ended in December 2020), while pension payments decreased by 4.3% (from 2.9% in 4Q20). Capital expenditures increased by 61.2% in the quarter ended in January, from 20.5% yoy in 4Q20. Finally, we note that energy and transportation subsidies increased by 37.4% yoy during the period, from an increase of 53.5% yoy in 4Q20. 

We forecast a reduction in the primary fiscal deficit to 4.5% of GDP this year, in line with the 2021 budget. We expect the IMF to push for further fiscal consolidation as part of the ongoing negotiations for a new assistance program. We highlight that there are political challenges, given the proximity of the mid-term elections and the plan to reduce inflation with nominal anchors like the exchange rate and tariffs (currently frozen). The Treasury needs to rely on the central bank to finance the deficit (at a cost of inflation), as Argentina has no access to international capital markets and only a small domestic market.

Juan Carlos Barboza
Diego Ciongo



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