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2023 financing needs likely to increase.
2023/08/31 | Andrés Pérez M., Vittorio Peretti & Ignacio Martinez Labra

Another large revenue contraction in July, partly driven by the reversion of an accounting mistake in June. Real revenues fell by 28% YoY in July, driven by ongoing weakness in cyclically-sensitive revenues (-15.4% YoY), lower private mining revenue (-34% YoY), a contraction in property rents associated to the quarterly lithium payment (-34.3% YoY), and a significant revision in “other income”. Regarding the latter, the accounting mistake in the recording of “other income” in June, recognized in July, led to total revenues in July being 15% lower than the actual print. This error also explains the small contraction in revenues reported in June (-3.9% YoY), which was hard to square after the double-digit contractions of May (-44.3% YoY) and April (-29.1% YoY). Real revenues through July have fallen by 17.8% YoY (-16.2% in June). 


Real expenditures contracted in July for the first time in the year. Real expenditures fell by 2.9% YoY in July (+2.7% in June), mainly due to a 4.8% contraction in current expenditures (+0.9% in June), while capital expenditures continue to rise at a double-digit pace (13.1% in July, 15.5% in June). The contraction in current expenditures was driven by a 15.6% contraction in subsidies and donations (-6.8% in June), reflecting base effects of a large transfer to the gasoline smoothing mechanism (MEPCO) last year. Spending pressures from the guaranteed pension program persist, rising by 9% YoY in July, yet slowed notably from previous months (+19.7% in June) reflecting fading base effects. Overall, real expenditures in the year through July have increased by 5.4% (6.9% through June). 


The fiscal deficit deepened in July. The fiscal balance in July was -0.5% of GDP (-0.5% in June), leading to a year-to-date balance of -0.4% of GDP (-0.1% as of June, +3% of GDP as of July 2022).


Liquid assets invested by the Treasury rose materially in July, driven by debt issuance. Liquid resources invested by the Treasury (OATP in Spanish) rose in July from USD2.6 billion to USD5.5 billion, with an important increase in peso denominated assets (USD2 billion, up from USD691 million in June) and dollar denominated assets (USD5.5 billion, up from USD1.9 billion). The rise in peso denominated assets likely reflects dollar sales and issuance of local currency bonds, while the increase in dollar assets may be explained by the placement of USD3 billion in offshore bonds received in July. The MoF has enough dollar assets to continue their dollar sales program during September at the announced USD2 billion pace. 


We maintain our above-consensus fiscal deficit of 2.6% of GDP. Revenues are still underperforming, with cyclically sensitive contracting at a double-digit annual rate, copper-related revenue falling, and lower lithium-related revenue. The spending contraction in July must continue throughout the year if the MoF is to achieve its +0.7% annual spending target. In this context, the MoF announced a spending cut equivalent to USD2 billion. Financing needs are likely to increase slightly above the announced USD15 billion plan.