Andrés Pérez M. & Vittorio Peretti
Economic slowdown pulls revenues down, despite extraordinary boost related to lithium. The Central Government’s real revenues fell by 16.6% YoY in October, driven primarily by lower VAT (-19.6% YoY) and copper related revenue (-89% YoY), despite the large windfall provided by lithium-related income in the month (roughly 0.38% of GDP). While revenues in October reflect the ongoing slowdown, cumulative real revenues in the year are up by 14.7% with respect to last year, down from 19.3% in September. In parallel, real expenditures fell by 29.9% in October, aided mainly by base effects (the universal cash transfer program – IFE Universal - was in place last year), while real capital expenditures rose by 4.1%, increasing for the first time this year. Fiscal expenditures accumulate a 22.1% real contraction in the year through October.
Cementing the case for a fiscal surplus this year. Even though revenues fell in October, the steep decline in expenditures allowed for an improvement in the cumulative fiscal balance this year, reaching 2.5% of GDP, up from 2.2% of GDP in September. The rolling 12m nominal fiscal balance continues to improve reaching 0.8% of GDP.
Treasury assets gradually decline, reaching roughly 7% of GDP by the end of October. Liquid resources invested by the Treasury (Otros Activos del Tesoro Público) fell to USD 7.6 billion (from USD 8.6 billion by the end of September), with dollar-denominated assets reaching USD 3.4 billion, and peso-denominated assets at USD 4.2 billion. Of note, dollar-denominated assets rose by USD 563 million in the month despite a payment of external debt of USD 430 million, suggesting dollar-denominated revenues of at least USD1 billion, which we believe could have been sourced from payments from the lithium sector and/or the local currency issuance of USD1 billion executed on October 20 (of which roughly half was allocated to international investors and paid in USD). Resources in sovereign wealth funds remained essentially unchanged in the month at USD 13.6 billion, with USD 7.1 billion in the Stabilization Fund, and USD 6.5 billion in the Pension Reserve Fund.
We expect the fiscal outperformance this year to gradually deteriorate, as cyclically-related revenues slow and expenditures rise following the seasonal patterns. Looking to next year, the 2023 fiscal budget considers a real expenditure increase of 4.2%, which according to the MoF should drive the fiscal balance back to a deficit of 2.1% of GDP (from a surplus of 1.5% of GDP estimated for this year). However, if current lithium prices remain unchanged next year, lithium-related revenues could provide a significant cushion, yielding an additional revenue windfall of at least 1% of GDP.
Andrés Pérez M.