The Argentine government has a still a long way to go to achieve the primary surplus that he promised to the International Monetary Fund (IMF), according to some data handled by the markets. The formidable spending adjustment carried out in Januarythe deepest in the last 30 years, allowed the economic team led by Luis Caputo to achieve a surplus of only half a point of GDP, indicating that the “chainsaw” effect has only just begun.
The estimates are the responsibility of the Cohen Argentina stock company. Its economists calculated that the $2 billion balance in favor that the Minister of Economy, Luis Caputo, was able to make in the first month of the year represents 0.51% of GDP, while $518,000 million is equivalent to 0.11 points.
In that sense, analysts raise doubts about the type of adjustment made so far. They consider that it is unsustainable over time, without generating social problems.
For example, in January, tax collection rose 0.8% in real terms, but if the components are broken down, this was due to the fact that Export duties grew 90% after the devaluation and the COUNTRY Tax increased 113.4% due to the increase in the rate and the expansion to almost all dollar purchases.
Fall in tax collection
The data indicate that, without accounting for taxes on foreign trade, the rest of Tax collection linked to domestic activity fell 12% year-on-year. With that fact in mind, it is impossible for the Government to eliminate taxes on foreign trade as stated in the latest agreement with the credit organization throughout this year.
“We are quite cautious when it comes to selling that Argentina is on the path to fiscal consolidation,” said Martín Polo, head of research at the Cohen brokerage house. in a talk for investors.
This statement is due to the fact that, in the first month of the year, no money was sent to the provinces, something that cannot be sustained over time, since there was a 64% cut in subsidies, which cannot be sustained either. sustain over time because, due to the devaluation, the burden of reducing aid to public services is even greater.
For now, Core inflation is traveling at a faster speed than regulated prices. For subsidies to disappear, the relationship has to be the other way around.
The path to zero deficit
In January of last year, the government had managed to record a deficit of almost 2.5 points of GDP, which represented the worst fiscal result for that month since 2010. This was due to the fact that, to close the accounts for 2022, the then Minister of Economy, Sergio Massa, postponed the payment of expenses accrued in November and December. The financial deficit in January 2023 was almost half a point of GDP.
In that way, The magnitude of the adjustment compared to a year ago was almost 1 point of GDP in both cases. And yet, most of the adjustment remains ahead and it has to be achieved in the first half of the year. This is because, between January and June, most of the tax revenue is usually recorded as a product of the harvest and after that, spending increases.
He Institute of Economic Research for the Argentine and Latin American Reality (IERAL) plans that the goal that the government set for 2024, much more ambitious than that requested by officials such as Gita Gopinath on his visit to Buenos Aires, It would be 3% of the primary surplus for this year.
“Initially, the new national administration announced the objective for 2024 of fiscal balance from a financial point of view after paying interest on the debt,” says the IERAL in its latest report.
The entity states that “According to the 2023 numbers, this objective would imply lowering the national deficit by 5.9 points of GDP”which correspond to 2.9% of GDP for the primary deficit and 3% for debt interest.”
Thus, the report indicates that “whether the national government aims for a primary surplus of 1.5% or 3% of GDP (the second implies financial balance) for this year, in any case, it means “a great fiscal consolidation effort between 2023 and 2024, of 4.4 and 5.9 points of GDP, respectively.”
What should be the Government’s strategy
He IERAl maintains that, given the magnitude of the necessary adjustmentit is not enough to just cut spending, so it is necessary to complement it with other possibilities:
– Increase resourcespreferably with little distorting taxes, or if it is with very distorting taxes (PAIS), that are truly transitory;
– Ensure that the provinces also adjust their expenditures, so that they need fewer discretionary transfers from the federal government, and thus alleviate, in this way, national spending.
Source: Ambito
