ARGENTINA – Fiscal deficit narrowed further in July

We forecast a primary deficit of 3.5% of GDP, below the budgeted amount of 4.5% of GDP

Juan Carlos Barboza & Diego Ciongo


The Treasury ran a primary deficit of ARS 98.6 billion in July, down from a deficit of ARS 155.5 billion a year earlier, helped by strong tax collection and extraordinary revenues associated with a one-time wealth tax. We estimate that the twelve-month primary deficit fell to 2.9% of GDP, from 6.5% in December 2020. We also estimate that the cumulative nominal deficit remained unchanged at 4.6% of GDP in the period (from 8.5% in December 2020), affected by the lower interest payments agreed to in the September 2020 debt restructuring.

Tax collection increased by 16.9% yoy in real terms in the quarter ended in July (down from 24.6% in 2Q21), led by higher export taxes amid a year-over-year recovery in activity. Total revenues (including non-tax revenues and the abovementioned wealth tax) increased by 27.4% yoy in real terms during the period, from 34.3% yoy in 2Q21.

Primary expenditures in real terms declined on a year-over-year basis in the quarter ended in July, due to a significant reduction of COVID-19 programs and a contraction in pensions. Primary expenditures decreased by 10.4% yoy in real terms, from -15.8% posted in 2Q21. Special COVID-19 programs fell by 60.3% yoy, while pension payments decreased by 7.8%, affected by the acceleration of inflation. Transfers to provinces fell by 44.6% yoy. On the other hand, there was an increase in payroll expenses of 2.4% (following the beginning of the annual wage adjustment), a 34.0% increase in energy and transportation subsidies, and a 41.9% increase in capital expenditures in the same period.

Looking ahead, we anticipate some deterioration of the fiscal accounts in the coming months, following the announcement of new social transfers and subsidies. The increase of fiscal expenditures and the payment of external obligations will require more central-bank financing, given the limits of a small domestic capital market and no access to external financing. Thus, a significant disinflation is unlikely, even considering the tough exchange rate and price controls in place. We forecast a primary deficit of 3.5% of GDP, below the budgeted amount of 4.5% of GDP.

Juan Carlos Barboza
Diego Ciongo