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Revenue contraction slowed materially, aided by base effects.
2023/07/31 | Andrés Pérez M., Vittorio Peretti & Ignacio Martinez Labra

Smaller contraction in fiscal revenues during June, as base effects fade. After large real revenue contractions in April (-29.1% YoY) and May (-44.3% YoY), primarily associated to base effects of the elevated revenues of the 2022 tax season which contrasted with last year’s slowdown, revenues fell by 3.9% in June. Real revenues have contracted by 16.2% year-to-date through June. Cyclically sensitive revenues in net tax revenues rose by 0.5% YoY, after falling by 55.6% in May, suggesting the concerning steep fall in recent months may have faded. In contrast, copper revenues contracted again, with CODELCO’s payouts falling by 86.8% YoY, and private mining related revenue by 45.3% YoY. As we anticipated, lithium-related revenue was not significant again in June, as the next large quarterly payment should take place in July.  


Real expenditure growth decelerates sharply in June. After rising by 13.4% YoY in May, real expenditure growth decelerated to 2.7% in June, taking the cumulative increase in the year through 2Q to 6.9% YoY (7.7% YTD in May). Spending in current expenditures slowed to +0.9% YoY (12.3% YoY), leading to a year-to-date increase of  6.4% YoY, with the deceleration in the month driven by a slowdown in social security spending (+19.7% YoY in June, from 32.1% YoY in May), and a fall in subsidies and donations due to base effects. Capital expenditures rose for the fourth consecutive month, increasing by 15.5% YoY in June (21.1% in May), with public investment rising by 36.3% YoY and capital transfers by 4.3%. Through 2Q, capital expenditures have increased by 10.8% YoY. 



Second consecutive monthly deficit in June. After a steep 0.9% of GDP monthly deficit in May, the monthly fiscal balance in June was of -0.5%, greater than the -0.3% of June 2022. The fiscal balance in the year through 2Q reached -0.1% of GDP (+0.4% in May), down from +2.8% of GDP through 2Q22. 

Liquid assets invested by the Treasury fell by USD2bn in June. Total Treasury assets fell to USD17.9bn (6% of GDP), from USD19.8bn in May. The fall in total assets was driven by the decline in liquid resources invested by the Treasury (OATP), that fell to USD2.6bn from 4.6bn in the month. Within OATP, peso-denominated assets fell to unusually low levels of USD692mn (from USD1.9bn in May), the lowest level for June since 2009, and well below the USD4.2bn average end-June level for 2010-2022. Dollar assets in OATP also fell to USD1.9bn, from USD2.7bn, down mainly due to the USD1bn in dollar sales program. Assets in the SWFs, entirely invested in foreign currency, rose slightly at the margin to USD14.4bn from USD14.3bn, yet had a relevant change in composition. The Stabilization Fund fell to USD5.9bn, from USD7.6bn, reflecting a one-off transfer of 0.5% of GDP to the Pension Reserve Fund, in turn, due to the 2022 1.1% of GDP fiscal surplus. As a result, the Pension Reserve Fund rose to USD8.5bn, from USD6.7bn. 


Dollar sales to resume in August. After completing its monthly guidance of USD1bn in mid-July, the MoF is expected to resume dollar sales on Aug 1. The MoF has sold a total of USD7.2bn through July, and is expected to continue selling USD1bn per month in August and September, at a daily maximum of USD100mn. In our view, dollar assets in OATP must have risen above USD2bn by the end July, driven by dollar-denominated revenue and bond sales. The MoF sells dollars to finance peso-denominated expenditures, not to address exchange rate considerations. 


We still expect an above-consensus fiscal deficit of 2.6% of GDP. New downside surprises to revenues amid still-strong fiscal spending through 2Q could lead to greater financing needs towards 4Q. In this context, the MoF has exhibited precautionary behavior with recent measures that have avoided transfers from liquid treasury assets to the SWFs totaling about 0.7% of GDP.