Itaú BBA - ARGENTINA – Fiscal deficit increased, affected by COVID-19

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ARGENTINA – Fiscal deficit increased, affected by COVID-19

Abril 22, 2020

We expect a dramatic deterioration of the fiscal accounts in 2Q20.

COVID-19 effects worsened the fiscal balance. The treasury ran a primary deficit of ARS 125 billion in March, compared with a deficit of ARS 13 billion in the same month of 2019. We estimate that the 12-month rolling primary deficit as of March increased to 1.1% of GDP, from 0.6% in February and 0.4% in December 2019. The nominal deficit, which includes interest payments, likely reached at 4.3% of GDP.

Tax collection dropped, affected by the lockdown, amidst an already weak economy. Total revenues decreased by 11.9% yoy in real terms in March, dragged down by falling tax collection (-7.9% yoy, adjusted by inflation) led by weak VAT revenues (-15.3% yoy). Primary expenditures rose 14.5% yoy in real terms, driven by higher subsidies and further assistance to provinces. Pensions and social benefits increased 12% yoy due to a sharp upward adjustment of child benefits and social plans, and to a lesser extent by a one-off bonus payment to pensioners.

We expect a dramatic deterioration of the fiscal accounts in 2Q20. Most of the announced increases in government spending to deal with the negative effects of COVID-19 and the contraction of the economy due to the lockdown will be evident in that quarter. We expect the economy to begin a slow normalization in 2H19, leading us to forecast a primary deficit of 2.4% of GDP for this year, from 0.4% in 2019. However, we note that risks are tilted to the downside.

Juan Carlos Barboza
Diego Ciongo



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