The official failed to clear up these doubts Neither at the press conference on Friday nor at the meeting with the banks on Monday morning. In an adverse context for emerging markets, this caused greater exchange rate pressure that widened the gap to 50%, a fall in bonds that increased country risk above 1,500 basis points, and a negative impact on stocks. Given this scenario, analysts agree that the second half of the year requires accumulating reserves, lowering country risk with credibility and agreeing on a new program with the IMF.
The Government sought to give some signals to the market through the 2025 Budget that it presented to Congress in draft or advance format, with the focus on monetary policy, inflation and a promise regarding the PAIS tax.
Commits to maintaining fiscal anchor
The Government stresses that they are aiming for macroeconomic stabilization and that their plan “is based on the fiscal anchorwhich consists of guaranteeing the financial balance of the Non-Financial Public Sector, eliminating the need for deficit financing via net borrowing or monetary issuance.”
He points out that “ensuring the fiscal balance It is a necessary condition for a robust macroeconomy that stops being an obstacle to investment, exports and the creation of quality employment.”
In this sense, one of the messages that the Government gives to the market is “the promise to move forward with the transfer of the liabilities of the Central Bank (BCRA) to the Treasury with the commitment of zero emission,” as indicated by Ambit Florence Fiorentineconomist of Epyca Consultants.
End date for the PAIS tax
On the other hand, a key signal that the Economy slips into the 2025 Budget is that They do not plan to renew the validity of the PAIS Tax once its validity expires, at the end of this year. “It would be maintained until December as well as the ‘crawling peg’ at 2%,” he highlights to this medium. Hernán Letcher, director of CEPA.
“It is estimated that the collection corresponding to the National Administration will be around 49.7% higher than in 2024 and will show a fall of 0.67 pp in terms of GDP. The collection is affected by the impact of the end of the COUNTRY TAX in 2024,” the Executive document states.
Although the pressure from analysts was on the side of a reduction in the tax rate for exporters In order to improve the pace of dollar liquidation, what was anticipated in the message from the National Executive to Congress on how it is putting together the 2025 Budget is that they will not renew the validity of that tax once it loses validity.
Insists on the 2% “crawling peg”
As stated, on the other hand, the Government ratified the 2% “crawling peg” in the Budget and anticipates that the official dollar will be quoted at $1,016 in December 2024which suggests that there will not be a strong devaluation or an acceleration of the monthly rate of devaluation of the dollar in one fell swoop, as was speculated in the market. It also recognizes an annual decline in the bilateral real exchange rate.
“The nominal exchange rate (TCN) with the dollar rises to $ 1016.1 (+58.3% year-on-year) and the inflation projected at the beginning of the budget preparation process was 139.7% year-on-year for December 2024, resulting in an average decrease in the bilateral real exchange rate (RER) of -2.3% in the year. However, official inflation data published after the close of this budget preparation phase suggest that inflation will be below 130% year-on-year by December 2024,” the Government said.
“It promises a 2% crawling peg going forward and inflation below 130%, but Given the current dynamics, it is difficult to guarantee that both things will be sustained. due to the movements that are taking place in the currencies. The fall in the real exchange rate will be above 2.3% in real terms and, on the other hand, there will be a clear drop in tax collection,” he says. economist Federico Glustein.
It also considers that Inflation will be somewhat higher than projected in the Budgetboth due to the exchange rate dynamics and the impact that tariffs can have on that variable.
Promise of a recovery in consumption and a fall in inflation
Regarding the recession that the economy is going through, Letcher assures that The Budget “expects a GDP drop of 3.5% for 2024” (in line with IMF projections), mitigated by the growth of the agricultural sector (+34.6%). Industry and trade are expected to decline by 9.8 and 9.1% respectively, and investment is expected to plummet by 17.2%.”
However, he anticipates that They expect a recovery in consumption. “From the demand side, expectations for the coming months are also positive. On the one hand, the improvement in the purchasing power of wages in the face of the slowdown in inflationthe real increase in social programs without intermediaries aimed at the most vulnerable population, and the rise in retirements and pensions after the change in the pension mobility formula made in April,” the document promises.
In this sense, official data suggests that Inflation will be below 130% year-on-year by December 2024They also point out that, starting in April, several major unions have closed agreements above the inflation rate for the month and that the trajectory of wage increases for the coming months is also higher than market inflation expectations.
“Real wages are expected to continue to improve throughout the year and favour the recovery of economic activity,” they anticipate. This is a key issue because the market is uncertain the recession generated by the Government’s program as a consequence of the liquefaction of the purchasing power of the peso and the cooling of the economy which was implemented in order to control inflation, through cuts, wage freezes in some cases and reduction of issuance, which had a strong impact on pockets and economic activity. They consider it to be one of the main threats hanging over the Government’s fiscal goal.
Little data on dollar revenue projections
The Budget says little about the issue that most concerns the market today, which is the inflow of dollars. Not included No reference to a new agreement with the International Monetary Fund (IMF). They report that financing from international credit organizations remained stable, reaching disbursements of US$5,657 million and achieving positive net flows of US$604 million.
And, on the other hand, he anticipates that, During fiscal year 2025, Argentina will maintain its efforts to optimize its portfolio of operations with international financing accompanying the proposed guidelines of fiscal prudence. No promise of fresh dollars, as the market is waiting for before the restrictions can finally be lifted.
Source: Ambito
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