Itaú BBA - ARGENTINA – Sharp deterioration of fiscal deficit in April

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ARGENTINA – Sharp deterioration of fiscal deficit in April

mayo 27, 2020

We expect fiscal accounts to continue to deteriorate in 2Q20.

Fiscal deficit increased with the recession and measures taken to mitigate the impact of the lockdowns. The treasury ran a primary deficit of ARS 228.8 billion in April, compared with a surplus of ARS 0.5 billion in the same month of 2019. We estimate that the 12-month rolling primary deficit as of April increased to 2.1% of GDP, from 1.1% in March. The nominal deficit, which includes interest payments, likely reached 5.0% of GDP.

Tax collection plummeted in real terms due to weaker activity and benefits. Total revenues decreased by 21.8% yoy in real terms in April, dragged down by declining tax collection (-20.5% yoy, adjusted by inflation). Vat collection and social security contributions fell 19.1% yoy and 27.2%, respectively. 

Primary expenditures skyrocketed due to fiscal stimulus package. Primary expenditures rose 35.1% yoy in real terms, driven by higher social security expenses, in particular bonus payment to workers and food cards. Energy and transportation subsidies rose 76.9% yoy in real terms due to frozen tariffs, while transfers to provinces grew a hefty 517.9% yoy. 

We expect fiscal accounts to continue to deteriorate in 2Q20. Weak activity will take a further toll on tax collection, while fiscal expenditures will continue to reflect higher social transfers. We forecast a primary deficit of 4.3% of GDP for this year, from 0.4% in 2019. However, we note that risks remain tilted to the downside (i.e., a higher deficit).

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Juan Carlos Barboza
Diego Ciongo



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