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We forecast a primary deficit of 3% of GDP for this year, larger than the target agreed with the IMF for 2023
23/05/2023 | Juan Carlos Barboza & Diego Ciongo

Argentina’s treasury ran a primary deficit of ARS 331.4 billion in April, compared with a deficit of ARS 79.2 billion one year earlier. We estimate that the 12-month-rolling primary deficit widened to 2.8% of GDP in April from 2.4% in December 2022.


Tax revenues fell in the quarter ended in April due to lower income tax revenues and lower trade-related taxes. Tax collections fell by 11.4% yoy in real terms in the period, larger than the 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 16.3% yoy in the period.


Primary expenditures declined in real terms during the quarter ended in April, led by a reduction in energy subsidies. Primary expenditures fell by 10.6% yoy in real terms in the period, compared with a 6.0% drop in 1Q23. Energy subsidies decreased by 41.4%, compared with a decline of 44.9% in 1Q23. Transfers to provinces declined by 33.2%, compared with a 19.0% drop in the first quarter of the year. Pension payments decreased by 8.2% (compared with -6.8% in 1Q23), while payroll payments increased by 7.7% yoy in real terms (similar to the 7.6% posted in the previous quarter). Finally, capital expenditures increased by 22.2% yoy (compared with an increase of 36.9% in 1Q23), mainly due to the construction of the Nestor Kirchner gas pipeline, while expenses on social programs were up by 19.6%, compared with an increase of 65.8% in the quarter ended in March.


We forecast a primary deficit of 3% of GDP for this year, larger than the target agreed with the IMF for 2023. With little access to domestic capital markets, the central bank has been the main source of financing for the treasury (primary deficit and debt service). The consequent monetary expansion – worsened by the implementation of special FX regimes – further worsens the inflation outlook.