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Second consecutive real expenditure contraction.
2023/10/01 | Andrés Pérez M., Vittorio Peretti & Ignacio Martinez Labra

Another double-digit revenue contraction in August. Real revenues fell by 10.8% YoY in August (-28% in July, driven mainly by the reversion of an accounting mistake in June), mainly due to weakness in net tax revenues(-19.5% YoY). Cyclically sensitive revenues (tributación resto contribuyentes) fell 20.1% and private mining revenue contracted by -6.3%. The weakness in the net tax revenues was only partly compensated by improvements in property rents (+16%) and Codelco’s payments (+16.6%). Real revenues through August have fallen by 17% YoY (-17.8% through July).

A large real expenditure contraction in August. Real expenditures fell by 12.4% YoY (-2.9% in July), contracting for the second consecutive month, with annual declines in both current and capital expenditures. Current expenditures contracted by 13.9% YoY in August (-4.8% in July), driven by a 30.2% annual decline in subsidies and donations, reflecting base effects of the end of the job creation program (IFE Laboral) that are likely to persist through yearend. Spending pressures from the guaranteed pension program persist, rising by 8.1% YoY in August, yet continue to slow from previous months (9% in July, 19.7% in June), reflecting fading base effects. Capital expenditures contracted by 0.9% YoY in August, after rising at a double-digit pace in recent months (13.1% in July, 15.5% in June). Overall, real expenditures in the year through August have increased by 2.7% (5.4% through July).


The cumulative fiscal deficit rose again in August. The fiscal balance in August was -0.2% of GDP (-0.4% in July, -0.3% in August 2022), leading to a year-to-date balance of -0.7% of GDP (-0.5% as of July, +2.7% of GDP as of August 2022).


Liquid assets invested by the Treasury at low levels. Liquid resources invested by the Treasury (OATP in Spanish) fell in August to USD1.9 billion, down from USD5.5 billion, reflecting a decline in peso and dollar denominated balances. Peso denominated assets fell to USD620 million, well below the USD2 billion by the end of July, mainly driven by deficit financing. Reflecting the stretched fiscal picture, the USD620 million in peso cash balances by the end of August 2022 contrast with the USD8.3 billion of August 2022 (at the time also high due to the end of the MoF’s USD5 billion dollar sales program). 


Low dollar levels by end-August point to limited dollar sales during October. Dollar balances at the Treasury fell to USD1.25 billion by the end of August, materially down from the USD3.55 billion by the end of July, partly driven by dollar sales for USD1.4 billion in August. During September, we estimate the MoF likely had dollar inflows related to mining for approximately USD300 million, while the MoF sold approximately USD1.1 billion (below the MoF’s USD2 billion monthly cap), suggesting the long spell in which the MoF did not sell dollars in September (14-28) was likely because they had reached critically low levels of dollar cash balances. In this context, in our view, the MoF is unlikely to sell USD2 billion during October, unless significant dollar inflows materialize in the near term, such as from an international bond issuance.


Our above-consensus fiscal deficit call stands at 2.5% of GDP. The cumulative fiscal deficit in the year as of August continues to increase, reaching 0.7% of GDP. While revenues continue to underperform, the deficit would have widened further, were it not for the second consecutive expenditure contraction in August, in turn, supported by base effects. Despite USD2 billion in spending cuts announced by the MoF for this year, financing needs are likely to increase slightly above the announced USD15 billion plan. The Public Finance Report to be published on Tuesday October 3 will contain updated macro-fiscal projections.