ARGENTINA – Fiscal deficit likely improved (as a share of GDP) before the elections

We anticipate further deterioration of the fiscal accounts in the coming months

Juan Carlos Barboza & Diego Ciongo


The Treasury ran a primary deficit of ARS 124.8 billion in August, up from a deficit of ARS 89.5 billion a year earlier, led by a significant increase in energy subsidies. In spite of that, we estimate that the twelve-month primary deficit fell to 2.6% of GDP, from 2.9% as of July 2021. We also estimate that the cumulative nominal deficit fell to 4.1% of GDP in the period (from 4.6% as of the previous period), affected by the lower interest payments agreed in the September 2020 debt restructuring.

Tax collection increased by 11.4% yoy in real terms in the quarter ended in August (down from 16.9% in July), led by export taxes amid a year-over-year recovery in activity. Total revenues (including non-tax revenues) increased by 17.5% yoy in real terms during the period, from 27.4% yoy in the quarter ended in July.

Primary expenditures in real terms declined on a year-over-year basis in the quarter ended in August due to a significant reduction of COVID-19 programs and a contraction in pensions. Primary expenditures decreased by 1.5% yoy in real terms, from -10.4% posted in the quarter ended in July. Expenditures with COVID-19 related programs fell by 54.5% yoy, while pension payments decreased by 6.0%, affected by the acceleration of inflation. Transfers to provinces fell by 12.5% yoy. On the other hand, there was an increase in payroll expenses of 3.7% (following the beginning of the annual wage adjustment), a sharp increase of 68.1% in energy and transportation subsidies and a 53.0% increase in capital expenditures in the same period.

Looking ahead, we anticipate further deterioration of the fiscal accounts in the coming months, following the decision to speed up expenditures as mid-term legislative campaigns ramp up. The increase in fiscal expenditures and the payment of external obligations will likely continue to be financed by the central bank, as the market appetite for peso-denominated bills fades. However, the government said it will record the allocation of SDRs as non-tax revenues in the coming months (approximately 1% of GDP), which will allow it to show a lower primary deficit in 2021 than our forecast of 3.5% of GDP for this year.

Juan Carlos Barboza
Diego Ciongo