What is the state of affairs today? According to the same source (Ministry of Economy), in January total income was driven by tax collection (it improved 49.5% year-on-year in nominal terms). However, there was a drop, in real terms, of 1.9% (remember that inflation was 50.7% year-on-year). Thus, the primary fiscal deficit was $16,698 million and the financial deficit (including interest on the debt) amounted to $150,664 million (equivalent to 0.2% of GDP).
For its part, income linked to economic activity, such as VAT (+53.8% year-on-year) and tax on credits and debits (+53.4%), reflected an increase above inflation. And the Income Tax recorded an increase of 55% year-on-year. But export duties fell 12% year-on-year due to a greater basis for comparison of foreign trade, as a result of the accumulation of sworn export declarations and a circumstantial improvement in the terms of trade. Income associated with Social Security Contributions and Contributions skyrocketed (+70.3%, almost 20 points above the accumulated inflation in the previous 12 months). And the expenditure items that grew above the accumulated inflation in the previous 12 months were: capital expenditures (public works), energy subsidies, retirement and pensions, AUH, and salaries.
Considering the rest of the items, transfers to the provinces and other social programs (which do not include the AUH) fell in real terms. In January, social benefits (pensions and social spending), which account for 55% of total operating spending, increased by 4.3% year-on-year in real terms. Although, taking in particular the item “Retirement and pensions” the increase was 8.6% (in real terms) in January (growing 63.6% year-on-year in nominal terms). The item “other social programs” (not including the AUH) is one of the items that fell the most, in real terms, since the so-called covid expense was included in 2021. In January it had a collapse of 33.5% compared to the same month of 2021 (in real terms). It is not minor to point out that “Other social programs” multiplied by 5.5 times and in 2021 it was reduced by half. Spending on public wages grew in real terms (55.7% year-on-year in January).
Economic subsidies (public services) grew 49.6% year-on-year. However, energy subsidies soared 75.9% year-on-year in January. In other words, they grew 16.7% in real terms. Why is this point transcendental? During the past year, economic subsidies (mainly energy, and to a lesser extent transportation) reached $1,398,000 million (3% of GDP). Now, according to the pre-agreement with the IMF, the commitment is to drop 0.6% of GDP by 2022 (which means a sharp increase in electricity and gas rates, well above inflation).
Likewise, capital expenditures (public works), in January, shot up 83.2%, compared to the same month of 2021, in nominal terms. In other words, growth is almost 33 percentage points above accumulated inflation in the last 12 months. Transfers to the provinces is one of the items that suffered the most real cuts. In January they rose only 35.7% (in nominal terms). This is equivalent to a 10% drop, in real terms. This item will continue to be adjusted during 2022, as negotiated with the IMF. As a last item, debt interest payments skyrocketed, in January, 394% year-on-year, compared to the same period in 2021 in nominal terms.
What can be glimpsed, with recent data from this 2022, is that the fiscal accounts, despite the understanding with the Fund, contemplate a fiscal inertia (post 2021). The reality is that today the items continue to grow above inflation, especially in: capital expenditure and energy subsidies
In short, in order to comply with the proposed rapprochement with the Fund and in particular with the required primary fiscal deficit objective, this dynamic must be discontinued. Another expected effect is linked to tax revenues. Probably, these rise due to inflationary effect. Inflation is running at 4% per month and is a fundamental piece to close the fiscal gap.
Professor at the University of CEMA
Source: Ambito
