Itaú BBA - ARGENTINA – Sharp adjustment of fiscal deficit in 2019

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ARGENTINA – Sharp adjustment of fiscal deficit in 2019

Janeiro 23, 2020

We forecast a primary deficit of 1% of GDP this year

The Argentine government met its primary fiscal deficit target for 2019. The treasury reported an estimated deficit of 0.44% of GDP (ARS 95.1 billion), slightly below the target agreed with the IMF (-0.5%, including the allowed deviations for social and investment expenditures) and beating our forecast of -0.8%. The nominal deficit for 2019 came in at 3.8% of GDP (vs. our estimate of -4.1%). The treasury noted that the deficits include some extraordinary income registered as current revenues and equivalent to 0.52% of GDP. 

High inflation and strict expense control drove a reduction of primary expenditures in real terms. Expenditures (excluding interest payments) in 2019 fell by 10.7% yoy in real terms. Capital expenditures and subsidies plummeted by a respective 26.8% yoy and 21.7% yoy in real terms. The acceleration of inflation led to a real decline of 12.8% in payroll and 6.2% in pension expenditures and other social benefits (indexed to past inflation).

Recession hurt tax collection. Total revenues in 2019 decreased by 1.4% in real terms, mostly reflecting weaker activity. The 3.5% drop in tax collection (real terms) was widespread, with the exception of export duties, which increased on a weaker ARS and normalization of the harvest. Other income expanded by 8.1% yoy in real terms, mainly due to the sale of public company assets and transfers from the social security agency to the treasury. 

We forecast a primary deficit of 1% of GDP this year. The government submitted to Congress a fiscal package that includes mostly tax hikes, which was approved. The law suspends the current formula for pension adjustments (past inflation and wage indexation) for 180 days, and energy and transportation tariffs were also frozen, for 180 and 120 days respectively. The final impact of the bill on the fiscal accounts remains uncertain because the new formulas for the adjustment of tariffs and pensions have yet to be announced, and the impact on energy subsidies could be significant. 

Juan Carlos Barboza
Diego Ciongo



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