Meanwhile, fiscal consolidations remain the key anchor of the economic program. They expect a revenue drop in the collection of the “PAIS tax” of around (-0.3%) of GDP until the end of the year, after the reduction of the percentage rate on imports of goods and transport services from 10%, starting in September. But being optimistic, they also estimate that the approval of the fiscal package in Congress could add up to (+0.7%) points of GDP in additional tax revenues this year, offsetting the reduction of the PAIS tax rate.
Looking ahead, they emphasize that they expect a sustainable rebound in economic activity, as this is a necessary condition to support tax collection.. That is to say, “Guys, you have to get the economy going”.
The cash current account in July is in the red. Cash registered a deficit of $1.6 billion in July, after a deficit of $200 million in June. The deterioration in July was mainly driven by the outflow of $1.6 billion related to interest payments to bondholders. In addition, Both the merchandise trade balance and the services deficit continued to worsen during the month of July.The current account accumulated in cash so far this year registered a significant surplus of US$ 7.3 billion, a significant change with respect to the deficit of US$ 6.4 billion registered during the same period of the previous year (an election year and with an extraordinary drought).
This reversal is mainly attributed to a decrease of US$ 14.2 billion in import payments, while export receipts experienced a reduction of US$ 1.7 billion. The lower performance in exports can be explained by the mixed exchange agreement (criticizes the dollar blend), under which 20% of total exports, some US$ 9.5 billion so far, are supplied to the foreign exchange financial market. As for imports, the decrease is due to both import payment restrictions and the “slowdown in economic activity”, expressing the concern of the previous paragraphIn particular, the BCRA has relaxed the regulations for import payments at the official exchange rate. Since August, import payments can be made in two installments, instead of the previous four, gradually normalizing the chain of late import payments, which had increased reserves. The office notes that the ratio between cash and accumulated imports reached a new high of 100% in July.
The financing account recorded a deficit of US$1 billion in July, mainly due to the amortization of hard currency bonds (US$1.3 billion) and intervention in the parallel foreign exchange market (US$326 million in the month, i.e. US$14.8 million daily on average).
This is in addition to the $400 million deployed in August, according to its estimates. In total, the current and financial accounts caused gross reserves to fall by $2.6 billion in July, generating the largest drag since October 2023.
Net reserves remained stable in August, despite the intervention (formally sterilization) in the parallel exchange rate, the BCRA was able to buy US$ 535 million in August in the official exchange market, after sales of US$ 184 million between June and July. As for net reserves in foreign currency, they are estimated to have stood at US$ (-5.3 billion) as of August 23, relatively stable compared to the previous month, but higher than the US$ (-8.6 billion) of December 23. The estimate considers as hard currency liabilities the amortizations of the Bopreal series 2 for around US$ 2 billion in the next 12 months, but not the Treasury deposits. Meanwhile, liquid reserves in dollars, excluding the swap line with China, the BIS and gold, stood at around US$ 4.5 billion. They point out that dollar reserve requirements have increased by US$2.3 billion since the end of June, partly explained by the US$1.3 billion increase in US$ deposits amid the new tax amnesty launched in August.
They expect net bookings to remain under pressure until the end of the third quarter and to recover in the fourth quarter, depending on policy decisions. Here desire and imposition are confused, and they finish by putting an expiration date on compliance.. Setbacks are foreseen due to the change in the BCRA’s import payment schedule. Remember that starting in September this will imply higher import payments in the future, the counterpart of which will be the decrease in the demand for imports in dollars in the first-line swaps market. The reduction of the PAIS tax on imports of goods and transport services by 10 percentage points could also generate a greater demand for imports at the official exchange rate.
Regarding external debt service, they assume that multilateral (ex-IMF) debt service is fully covered until the end of 2024. They also contemplate a parallel foreign exchange intervention of US$800 million until the end of 2024 and similar inflows into the parallel foreign exchange market due to the tax amnesty/RIGI, which should allow the lifting of the 80/20 export mix scheme near the end of the year. The latter looks like “systemic corporate suggestion”.
They note that under these assumptions, net reserves will decline by around $2 billion through the end of October and recover by $2.7 billion in the last two months of the year (assuming currency mixing is eliminated). This is consistent with net reserves closing the year at around $(-4.5) billion and liquid reserves (excluding the China, BIS and gold swap line) close to $5 billion.
They clarify that this is a conservative estimate since they are not taking into account possible increases in liquid reserves associated with higher dollar deposits amid money laundering and the obtaining of eventual repos or other loans.
On August’s actual tax collection, they note that it returned to negative territory after a slight rebound in July. Total actual tax collection (JP Morgan seasonally adjusted) fell (-5.2%) month-over-month, from (+3.2%) month-over-month. Most of the monthly contraction in actual tax collection was driven by a decline in foreign trade-related tax collection and the “PAIS tax,” which fell (-18.7%) and (-6.1%) month-over-month, respectively. On a year-over-year basis, actual tax revenues declined (13.7%) year-over-year in August (when deflated by inflation over the past 12 months), representing a (-7.8%) contraction so far this year. Although they do not say it openly, they let the numbers speak for themselves, they are alarming.
Going forward, they expect the “PAIS tax” collection to decline starting September 2 (which has already happened), and its total elimination in December. They estimate that the reduction could result in an effort of (-0.3%) of GDP in tax revenues until the end of the year. But they also estimate that the approval of the fiscal package in Congress could add up to (+0.7%) of GDP in additional tax revenues this year, more than offsetting the effect of the “PAIS tax” reduction on revenues. That said, they warned that they would be attentive to the fate of the pension bill, which was recently vetoed by the president, but if revoked by Congress could have resulted in an additional fiscal burden of (0.4%) of GDP this year and 1% next year. It is obvious that if the fiscal package does not go as the investigators expect, alarm bells must ring..
Later, they go on to emphasize that A sustainable rebound in economic activity becomes a necessary condition to support tax collection in the future. Finally, they state that the one-time increase in income tax following the end-of-year exchange rate devaluation in 2023, of around 1% of GDP, is unlikely to be repeated next year. In total, they estimate a decrease of around (-2.5%) of GDP in tax revenues for 2025, and suggest that it should be partly offset by the fiscal package approved in Congress, but mainly by a rebound in economic activity that boosts tax revenues.
Cleverly formulated by researchers at JP Morgan’s research department, Their main concern is that a rapid and robust recovery of activity beginsIn other words, if the economy does not grow, it will not collect enough revenue and the program will lack a surplus, its most boastful justification and key to generating resources to buy the unavoidable dollars.
Director of the Esperanza Foundation. https://fundacionesperanza.com.ar/ Professor of Postgraduate Studies at UBA and Masters in private universities. Master in International Economic Policy, Doctor in Political Science, author of 6 books
Source: Ambito
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