Itaú BBA - ARGENTINA – Treasury posts primary surplus in 1H19

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ARGENTINA – Treasury posts primary surplus in 1H19

julio 12, 2019

Real expenditure cuts continued to support fiscal consolidation.

The Treasury reduced its primary deficit in June. The federal government ran a deficit of ARS 6.6 billion in June (down from ARS 56.7 billion in June 2018), leading to a surplus of ARS 30.2 billion for the first half of the year (the first surplus for this period of the year since 2011). We estimate that the 12-month rolling primary deficit fell to 1.5% of GDP, from 2.0% in 1Q19 and 2.6% in 2018. The nominal deficit, which includes interest payments, came in at 4.5% of GDP (down from 4.9% in 1Q19).

Real expenditure cuts continued to support fiscal consolidation. Primary expenditures decreased by 13.2% yoy (in real terms) in the first half of the year, driven by a reduction of capital expenditures (-17%), payroll expenses (-13.7%), subsidies (-13.2%), and pension and other social expenditures (-12.5% in real terms). The Treasury had tight control of nominal expenditures, which, in the context of high inflation, offset the 3.8% yoy decline in total real revenues in the period. Tax revenues dropped by 7.2% yoy, affected by weak activity.     

During the press conference to announce the results, Minister Dujovne anticipated that the primary deficit for 2019 will be 0.3% of GDP. Dujovne expects provinces to run a combined primary surplus of 0.3% of GDP, slightly down from 0.5% in 2018. As a result, the consolidated public sector accounts (including provinces) will likely be balanced. While we expect further fiscal consolidation, we note that the electoral cycle poses the risk of a wider deficit. We forecast a federal primary deficit of 0.5% of GDP for 2019, in line with the maximum deviation agreed to with the IMF due to investments financed by multilateral institutions and additional social expenditures.



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