Argentina’s treasury ran a primary deficit of ARS 611.7 billion in June, compared to a deficit of ARS 321.6 billion one year earlier. We estimate that the 12-month-rolling primary deficit increased to 2.6% of GDP in 2Q23, from 2.5% in 1Q23 and 2.4% at the end of 2022.
Tax revenues fell in 2Q23, led by lower trade-related taxes and income tax revenue. Tax collections fell by 5.0% yoy in real terms in the period, from a 9.1% decline posted in 1Q23, due mostly to the declines in export and import taxes, which reflected a severe drought and import controls, respectively. Total revenues decreased by 7.1% yoy in the period (-11.7% yoy in 1Q23).
Primary expenditures also declined in real terms during the quarter ending in June, led by a drop in transfers to provinces and social programs, including pensions. Primary expenditures fell by 6.2% yoy in real terms in the period, compared with a 6.0% drop in 1Q23. Pension payments were down by 8.3% (vs. -6.8% in 1Q23), while expenses on social programs fell by 25.4% yoy, significantly below the increase of 65.8% in 1Q23. Transfers to provinces declined by 25.6% (-19.0% in 1Q23). Energy subsidies increased by 12.7%, compared with a decline of 44.9% in 1Q23, while transport subsidies dropped by 21.1% in the period from 20.4% in the previous quarter. Finally, payroll payments increased by 6.3% yoy in real terms (from 7.6% in the previous quarter), while capital expenditures were up by 14.8% yoy (compared with an increase of 36.9% in 1Q23), mainly due to the construction of the Nestor Kirchner gas pipeline.
We forecast a primary deficit of 3% of GDP for this year, below the target agreed upon with the IMF for 2023 (1.9% of GDP).