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We expect a balance primary.
2024/01/23 | Andrés Pérez M. & Diego Ciongo

Argentina’s treasury ran a primary deficit of ARS 1,991.3 billion in December, from the deficit of ARS 502.1 billion posted one year earlier. Thus, the primary deficit increased to 2.9% of GDP in 2023, up from 2.4% in 2022.

Tax revenues fell in 4Q23, led by lower export taxes and income tax revenue. Tax collection fell by 11.7% yoy in real terms in the period, after falling 6.6% in 3Q23 mostly due to lower export taxes, reflecting the persistent effects of the severe drought. Total revenues also decreased by 7.7% yoy in the period (-8.2% yoy in 3Q23).


Primary expenditures declined in real terms in 4Q23. Primary expenditures fell by 3.7% yoy in real terms in the quarter ended in December, compared with a 3.4% yoy drop in 3Q23. Pension payments were down 16.9% yoy (-6.8% yoy in 3Q23), affected by the acceleration of inflation, while capital expenditures dropped by 21.0% yoy in the period (-3.6% yoy in 3Q23). Energy subsidies decreased by 10.4% yoy, compared with a drop of 41.7% yoy in 3Q23. On the other hand, expenses in social programs rose by 27.5% yoy, transfers to provinces grew by 32.3% yoy and payroll payments increased by 11.3% yoy in real terms, in the context of the final run-up to the presidential election.


A challenging fiscal consolidation in 2024. The government is implementing a sharp fiscal adjustment, aiming for a balanced nominal fiscal balance in 2024 (the nominal fiscal balance reached 6.1% of GDP in 2023, above the 5.2% estimated by the government in December). The guidelines provided by the authorities focus primarily on expenditure cuts, and less so on revenue measures. On the expenditures side, energy and transport subsidies will be reduced, capital expenditures will be frozen, and transfers to provinces will be the main areas of adjustment. On the other hand, revenue measures include higher taxes on imports and exports, the reversal of the recent income tax reform and a tax amnesty, among others.  


We expect a balanced primary fiscal account (0% of GDP) in 2024, less ambitious than official estimates that point to a balanced nominal fiscal deficit (the debt interest bill totalizes around 3.0% of GDP). In our view, the program shows a roadmap towards consolidation, yet implementation is likely to be challenging, considering that more than a half of primary expenditures are related to pensions and social assistance, which seem especially hard to cut under the current stagflationary outlook.