Also alerts about the possibility of “External shocks that deteriorate the terms of exchange and international financial conditions can impact on operational costs and fiscal space and private investments. ”
The mitigation strategy includes strengthening the social agenda and improving the social protection system and disseminating the expected results to facilitate dialogue and consensus. And to mitigate the risks of external liquidity, it is planned to make regular monitoring, support compliance with the commitments, and facilitate the use and development of coverage instruments along with the support of the local capital market development, together with access to countercyclical instruments to mitigate the impact of external crises.
Challenges
It is pointed out that the country faces important fiscal challenges due to the Expansion of public spending accumulated from 2002 to 2023, which was financed with increased tax pressure, debt and monetary emission, deriving in macroeconomic instability, growing inflation and debt crisis and external sector recurring until 2023.
Consolidated public spending went from 29% of GDP in 2002 to 42% in 2023mainly driven by The growth of social spending (+8.4 pp of GDP), transfers to the private sector, which includes social benefits (+3.6 pp in two decades), energy subsidies (+1.8PP of GDP) and transport (+1.3 pp of GDP).
It is highlighted that this process was accompanied by allocative and technical inefficiencies, such as Increased social spending biased to elderly to the detriment of early childhood, and economic subsidies in energy and transportation.
Likewise, the increase in the state -operation expenditure between 2002 and 2023 (+1.3 pp of GDP), as well as the deficit of state companies, which required financial assistance equivalent to 1.5% of GDP in 2021. Finally, finally, finally, finally, finally, finally, finally, finally, finally, One of the main factors of allocative inefficiency is the high level of spending on retirement and pensions, which went from 5.6% of GDP in 2005 to 9.8% of GDP in 2023.
Taxes
In addition to the inefficiencies in budget spending, The tax expenditure is estimated at 3.48% of GDP in 2024, of which 0.4% correspond to economic promotion regimes.
Given this situation, in 2024 a fiscal consolidation process began that allowed to reduce the expense of the national public sector by 4.3 pp of GDP, concentrating on the adjustment of economic subsidies (0.6 pp of GDP), transfers to provinces (0.5 points of GDP), salaries (0.4 PIB points), capital expenses (1.12 points of GDP), retirement and pensions (0.5 PIB points).
In terms of resources, it is pointed out that Argentina faces high tax pressure derived from the implementation of distortive taxes. In the last two decadesfederal and provincial tax pressure has increased from 16% to 25% of GDP and 3% to 5% of GDP, respectively.
Investment
The document points out that this context Discounted savings and private investment, keeping them below the levels of comparable countries (16% of GDP in 2023 behind Brazil, Chile and Uruguay).
In parallel, the deficiency in institutional and regulatory quality, reflected in the deterioration of governance indicators in the last 20 yearsrepresents an additional obstacle to improving the fiscal efficiency of the country.
The structural increase in spending resulted in a series of fiscal deficits that contributed to instability that mainly penalized the lower income population.
Primary fiscal deficits were in a range of between 0.1% of GDP and 6.4% between 2009 and 2023, period in which the sovereign debt climbed from 39% of GDP in 2011 to 157% in 2023.
In 2020, the sovereign external debt was restructured with private creditors without recovering access to external credit and with high country risk. In this period, inflation fluctuated between 7% in 2009 and 211% in 2023.
Aid
Faced with this situation, the agreement with the IDB contemplates:
- Support tax reform
- Improve the technical and assignment efficiency of public spending
- Strengthening of the Federal Tax Administration.
Social situation
The IDB points out that “Poverty is significantly affected by macroeconomic instability, particularly by inflation and brake on growth ”. The poverty rate has oscillated between 25 and 50% in the last 20 years.
The document reviews that the current process of correction of macroeconomic imbalances and relative prices initiated in December 2024 was associated with an initial inflationary and economic contraction that contributed to the percentage of the population under the poverty line reaching 52.9% in the first half of 2024, while the indigence rate was 18.1% of the population.
The recovery of economic activity and real wages since May 2024 He is reversing To a large extent this rise in income poverty, But it is still equally high, reaching 38.1% of the population and 28.6% of households, in a context in which formal and informal real wages are still 27% and 47% respectively below the maximums reached in 2017.
It is emphasized that “despite the significant recent achievements of revenue povertyArgentina faces a high vulnerability to poverty (probability that a home between and leaves poverty frequently) and high chronic poverty associated with high labor informality.
It is estimated that more than half of the children between 0 and 14 years are poor. On the other hand, there is an important geographical dispersion of poverty, with a greater incidence in the northeast and northwest regions, and in the conurbano Buenos Aires.
Programs
The IDB evaluates that household and pregnant transfers programs have high coverage, They are well focused and have shown impact on the reduction of extreme poverty. However, he argues that there are opportunities for design improvement to avoid overlays, inequities and efficiently efficient co -responsibilities. In addition, the informality rate of the employees exceeds 36%.
To alleviate poverty, Social assistance programs have increased in the last decade. The social protection system in Argentina is considered to be fragmented in the late 2023 and presented various inefficiencies and inequities, although with a high level of coverage and high efficacy.
After considering that these programs play a significant role of social containment, it is considered that, in the context of the need to advance in fiscal consolidation to reduce instability, it is necessary to rationalize them, reduce fragmentation, and contribute to an improvement in the assignment efficiency of social spending.
The IDB also refers to that “The educational quality deficits of the last decades were deepened with the pandemic, and are marked in all indicators, the literacy setback is particularly relevant”.
This situation reflects an increase to 2019 of the percentage of 3 grade primary schools that did not reach the minimum level of competence in reading comprehension. Meanwhile, the Learning evaluation shows a deterioration in the performance of 6th grade students between the last two measurements (2022 and 2023), both in language and mathematics, with an increase in students in the basic and lower levels.
Deficits
It also indicates that Argentina has deficits in primary health care, medical coverage, incidence of chronic noncommunicable and fragmentation and inefficiency of health.
The document realizes that, although Argentina maintains a high level of global health expenditure (10%) above the average Latin America (7%) and high -income countries (8%), It presents sanitary results less than expected for its level of investment and per capita income.
This way, Argentina reaches only 61% of the health improvement potential for a universal effective health coverage system. In addition, it points out that there is a lack of indicators and mechanisms to monitor and evaluate the quality of health services systematically, making it impossible for the improvement of the performance quality. The number of people with public coverage who have electronic medical records only reaches 30.4% in 2023.
Insecurity
“Insecurity constitutes one of the main problems that affects Argentine society”. Although Argentina presents one of the lowest homicide rates in the region (4.4 homicides per 100,000 inhabitants in 2023), there are marked differences in territories in the interior of the country, as is the case of the jurisdiction of Santa Fe and the city of Rosario where the homicide rates are up to five times greater than the country average (10.1 and 20.51 homicides per 100.00 inhabitants in 2021 respectively). Specifically, six out of ten deaths in Rosario are related to the illegal economy or criminal organization.
The V modalitydomestic Iolence constitutes 97.0% of the situations reported nationwide. On the other hand, Argentina evidence A significant growth of the prison population (47% in five years), which in turn translates into high overcrowding and deterioration of the living conditions of people deprived of liberty.
Thus, the IDB indicates that “All this leads to a high distrust in the country’s security and justice institutions”.
In addition, Argentina faces An increase in households residing in urban informality conditions and that have a deficit of coverage and water quality and sanitation. The housing deficit in urban homes is 38.1% significantly greater than 2010 (35.5%). In this context, the level of public network water coverage reaches 89.7%, while sewer service coverage reaches only 71.5%.
The objectives in this matter are:
- Improve the effectiveness and efficiency of the social protection system, including tax and non -contributory pillars.
- Achieve a more equitable, efficient and population health system.
- Support the implementation of the National Literacy Plan and the development of digital skills.
- Promote urban integration projects to improve living conditions in informal settlements, with infrastructure, basic services and social and economic development programs.
- Improve the quality of urban mobility services.
- Expand access to water and sanitation services by improving operational efficiency, integrated water resources and environmental sanitation.
- Strengthen the capacities of security and justice institutions.
Source: Ambito
