with less room for maneuver, the government’s challenge will be to grow more

On the other hand, tax revenues -excluding those from foreign trade- would not contribute as significantly to the dynamics of the fiscal result of 2021. Although the collection of taxes linked to the internal market and the labor market had an expected cyclical behavior -falling in 5% in real terms in 2020 and increasing 7% in 2021- in terms of the product they would not show a great variation this year.

Different is the case of resources linked to foreign trade -especially withholdings- which benefited not only from the recovery of the volumes exchanged, but also from the sharp jump in international prices. In terms of resources, those linked to foreign trade explain an improvement of 0.8 pp of GDP in the national primary result.

“Beyond these” positive “effects on public accounts that the exit from the pandemic had – considering that the rise in international prices is also part of that exit cycle – the primary result will also improve due to other elements,” said the report of the consultant.

Other factors are:

• The rise in inflation, which will be around 50%, impacted on the retirement mobility formula (it indexes approximately 40% of primary spending), which will remain on average behind prices. “Although between points (December-December) the mobility formula will show an increase similar to inflation (52.7%), on average the rise will be around 38%, 10 pp below average inflation and almost 25 pp below nominal GDP. In this way, mobility-adjustable spending would grow by around 40% yoy, falling 1.5% of GDP this year “.
• Solidarity and extraordinary contribution contributed to a 0.5% improvement in GDP.
• Expenditure on salaries and transfers to universities would grow 15p.p below nominal GDP, showing a reduction of 0.3% in GDP.

In this way, the government achieved “Computing all positive and negative effects explains the transition from the deficit of 6.4% of GDP in 2020 to 3.3% of GDP in 2021.”

What factors will not be repeated in 2022

For Ecolatina, the first of them is that a priori there would not be the Extraordinary Contribution, which implies an additional inertial deterioration of 0.5% of GDP. The second element concerns precisely the pension mobility, which in 2021 went from low to high: although the annual average would grow almost 40% yoy, as of December “end-to-end” growth will easily exceed 50% yoy, leaving an important carry-over effect by 2022.

“Considering our macroeconomic projections, spending on mobility would increase a few points above 50% in 2022, which could imply a slight rise in terms of GDP. Salaries have a similar behavior: considering a parity similar to projected inflation, for the “carry-over” effect on expenditures could also increase slightly in terms of GDP, “said Ecolatina.

In this sense, the consulting firm expresses that the challenges for 2022 are difficult for the Government: “Any improvement in income should come from an improvement in collection associated with a greater dynamism of economic activity, which is unlikely to happen in 2022. Although there are potential increases – such as the end of some exemptions in force in the context of the pandemic – it is also clear that there are risks from the effect of international prices on foreign trade resources. “

“In addition, considering that the adjustable spending for mobility, salaries and universities represent 55% of primary spending, the margin of action is limited to less than half of spending. Part of it is highly sensitive: it includes subsidies -which implies raising rates-, capital spending, social programs and transfers to the provinces -many of which are established by law-. In this way, the picture of fiscal policy for 2022 looks challenging: the improvement in 2021 was significant, but supported by effects that will not be in 2022. This leaves an inertial deficit greater than that registered this year, but the most worrying thing is that although it looks manageable, there are limited spaces to act “, Ecolatina concluded.