Argentina’s treasury ran a primary deficit of ARS 37.0 billion in August, substantially smaller than the deficit of ARS 224.7 billion posted one year earlier. We estimate that the 12-month rolling primary deficit decreased to 2.2% of GDP in the quarter ended in August from 2.6% of GDP in 2Q23.
Tax revenues fell in the quarter ended in August, led by lower trade-related taxes and income tax revenue. Tax collections fell by 0.5% yoy in real terms in the period, after a 5.0% decrease in 2Q23, mostly due to lower export and import taxes, which, in turn, reflected the effects of a severe drought and import controls, respectively. Total revenues decreased by 1.4% yoy in the period (-7.1% yoy in 2Q23).
Primary expenditures declined in real terms in the quarter ended in August, mostly due to lower energy subsidies. Primary expenditures fell by 3.1% yoy in real terms in the quarter ended in August, compared with a 6.2% yoy drop in 2Q23. Pension payments were down 6.4% yoy (-8.3% yoy in 2Q23), while capital expenditures dropped by 2.8% yoy in the period (+14.8% yoy in 2Q23). Energy subsidies decreased by 20.7% yoy, compared with an increase of 12.7% yoy in 2Q23. On the other hand, and in the context of the final run-up to the presidential primary election, expenses for social programs rose by 13.8% yoy, transfers to provinces grew by 5.7% yoy and payroll payments increased by 5.3% yoy in real terms.
We forecast a primary deficit of 3.0% of GDP for this year, above the 1.9% deficit targeted for 2023 in the agreement with the IMF. In our view, the country’s fiscal accounts will deteriorate in the last few months of the year following policy measures implemented after the primary elections, including a higher income threshold subject to income taxes, VAT-refunds on basic goods, higher social subsidies and a fixed amount of ARS for public employees and pensioners, all of which will be implemented in the context of still-weak economic activity.