The government assured that it had achieved the first objectives with the IMF and that the new measures would not compromise the agreement

The government assured that it had achieved the first objectives with the IMF and that the new measures would not compromise the agreement

The Ministry of Economy would have exceeded the figure for the primary deficit, as Guzmán had anticipated (Nicolás Stulberg)

The government ensured that it met the first quarterly targets agreed with the International Monetary Fund and that, for this reason, it will pass the first assessment when the personnel of the organization check the planned commitments for the primary deficit, the monetary issue and the reserves. With this accomplishment, the executive branch would be able to receive a second disbursement of approximately $4,150 million.

This room for maneuver that the Ministry of the Economy has released with the budgetary objective – the final official figure will be known this week – due to a higher level of collection than expected, It will allow the government to finance the exceptional bonuses that it will pay in May and June to informal employees, monotributistas A and B and private workers and only in May to retirees..

According to the Minister of Economy Martin Guzman Before starting his trip to Washington to participate in the spring meeting of the IMF and the World Bank, towards the end of the first quarter the result of the public accounts recorded a primary deficit equivalent to 0.25% of Gross Product. In nominal terms, this would imply, using as a reference the figures for each quarterly target foreseen in the MoU, about $175 billion.

The government claims to have achieved the first quarterly objectives that it had agreed with the International Monetary Fund. With this compliance, the executive power would obtain a second disbursement which will be approximately 4,150 million dollars.

The first objective required by the Tax Trajectory Fund was $222.3 billion, or just over 0.30% of GDP. In this way, The Treasury would have exceeded by just under $50,000 million. In any case, this is not a sufficient figure to cover the new expenditure implied by the obligations announced on Monday due to the acceleration of inflation.

From the executive branch, they circulated varying estimates on the total fiscal cost that the measure will have, between $200,000 and $240,000 million. For some consultants, this would lead, a priori, to a lower expense.

The Monetary Fund will carry out the first quarterly assessment of the figures of the Argentine economy in mid-May.  REUTERS/Yuri Gripas

The Monetary Fund will carry out the first quarterly assessment of the figures of the Argentine economy in mid-May. REUTERS/Yuri Gripas

“Depending on the requirements that it is decided to impose on the universe of potential beneficiaries, the additional costs induced by these new transfers without counterpart (subsidies) range from between 176,000 and 235,000 million dollars. Expressed as a percentage of GDP, it is between 0.25% and 0.33% of the estimated product for 2022,” the Argentine Institute of Fiscal Analysis (Iaraf) published.

In the same vein, for PxQ, the consulting firm founded by Emmanuel Alvarez Agis“taking all the universes covered, the total cost of the measurement would amount to approximately $170 billionwhich is equivalent to 0.23% of GDP,” he estimated.

“The measure aims to recompose income at the base of the pyramid in a context where inflation cumulates 16% in the first quarter of the year against 12.3% of discounting pensions due to the effect of the formula (without calculation of obligations) It must be taken into account that before the acceleration of inflation and the impact of the war, the income of undeclared workers marked an annual drop of 6.6% in real terms in January,” he said.

The first target required by the Fiscal Trajectory Fund was $222.3 billion, or just over 0.30% of GDP. In this way, the Treasury would have exceeded by just under $50,000 million

According to official sources, In addition to the higher than expected collection, the new obligations will be financed by reallocations of budget items, to prevent the measure from implying an increase in the levels of monetary issuance, which also have a corset under the agreement with the IMF. The executive has not yet readjusted the current budget – which is that of 2021 – to the guidelines of the economic program agreed with the agency, for which it had planned the date of April 15.

One factor that would have allowed the government to exceed the budget target is that had income above what was provided for in the agreement with the Fund. In addition to capping the primary deficit, one of the objectives is to maintain a minimum income, which for the first quarter was 2,417 billion pesos between the first three months of the year. Unlike other objectives, it is not conditional on receiving disbursements.

Guzmán assures that the government has exceeded the budgetary target agreed with the IMF.  REUTERS/Agustin Marcarian

Guzmán assures that the government has exceeded the budgetary target agreed with the IMF. REUTERS/Agustin Marcarian

These 2,400 billion pesos of “real income” – a criterion which takes into account different elements but of which 90% is explained by the collection of the AFIP tax – could have been exceeded with a margin. Between January and February alone, that revenue was $1.7 trillion, so for March he only needed $700,000 million more.. Although the final official data is known this week, we can anticipate that the strong increase in collection -1.24 billion and 6.5% in real terms- has created fiscal space for the government.

The other objectives required by the Monetary Fund would also have been achieved, even if they were easier to achieve according to analysts. So the fine print said that reserves should have increased by $1.2 billion net, while deficit monetization will have a cap of $236.8 billion.

In both cases, the BCRA ensures that the objectives have been achieved. In the first case, because of the first IMF disbursement of USD 9.7 billion and, in the other, because the accumulated until the end of the first quarter of transitional advances to the Treasury for 122,000 million dollars.

According to official sources, in addition to the higher than expected collection, the new obligations will be financed by reallocations of budget items, to avoid that the measure implies an increase in the levels of monetary issuance.

The final evaluation of these figures will be made by the IMF’s technical team in mid-May, during the advanced mission – its initial date was June 10 – and which will be the first performance evaluation of the new program. If all goes as planned by the government, he can count on a second disbursement of USD 4,155 million more to swell the reserves of the BCRA.

Another question that arises is whether, beyond the budgetary margin achieved in the first quarter, the new emergency measures due to inflation could put some kind of pressure on the second goals to achievethat is, those that will end on the last day of June and will be evaluated in September.

The progress of the AFIP collection has given the government fiscal space to take emergency measures in the face of rising inflation (Photo: AFIP)

The progress of the AFIP collection has given the government fiscal space to take emergency measures in the face of rising inflation (Photo: AFIP)

To put the figures: the figures agreed by the government for the second review imply that the primary deficit is expected to be around $566.8 billioncumulative state revenues of 4.7 trillion pesos, social expenditures of at least $318,000 million, the reserves should have increased by $4.1 billion in net form and the monetization of the deficit could not exceed $438 billion.

For PxQ, “according to our estimates, the measure does not imply a deviation from the budget path agreed in the EFF”. To justify it, they support three arguments. First, the recovery in the level of activity. Secondly, the acceleration of inflation and, finally, the higher prices of raw materials, which imply a higher collection than that foreseen in the agreement.

The objectives of the BCRA (issuance and reserves) would have been achieved, on the one hand, by the first disbursement of 9.7 billion USD from the IMF and, on the other hand, because the Central accumulated until the end of the first quarter of transitional advances to the Treasury for $122.0 billion, more than $100,000 million below the established ceiling

“It should be noted that, so far, not only the economic objectives are achieved, but also the “political” objectives. Based on available data, the evolution of total primary expenditure for the first two months of 2022 shows a real growth of 7.7%. Regarding the composition of this real expansion of expenditure, social benefits increased by 7.1%; pensions (included in social benefits) increased by 21.6%; and economic subsidies increase by 22.5%”, they estimated with the consultant.

Iaraf, for his part, mentioned that “like any additional income transfer made without specific funding, all these new expenditures increases the deficit that existed before its creation”, published in a report by the Córdoba-based study center.

“Given the objective of reducing the annual primary deficit from 3% of GDP in 2021 to 2.5% of GDP in 2022, a reduction in the red primary equivalent to 0.50% of GDP has been initiated. Yesterday’s announcement is then equivalent to between half and two-thirds of the entire annual correction agreed with the IMF,” he concluded.

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