How to read Argentina’s 2019 fiscal numbers

30th January 2020

By Fermín Koop

How to read Argentina’s 2019 fiscal numbers

Argentina’s fiscal numbers for 2019 are finally in, but differences on how to read into them continue.

The figures, which were published by the Fernández administration last week, said the country registered a primary fiscal deficit of 208.7 billion pesos, equivalent to 0.96% GDP – an improvement when compared to the 2.4% primary deficit seen in 2018, mainly due to a reduction in real (that is: inflation adjusted) expenditure, following the strong depreciation of the Argentine peso.

</p> <p>When interest payments (totaling 933 billion pesos) are added to that number, however, the deficit rises to 4.2%, a drop from the 5.2% registered last year but still quite a significant sum, as debt payments represented 18.4% of total state spending.</p> <p>A lower primary deficit could be an encouraging sign for the country to be closer to an equilibrium in 2020, but experts believe too many crucial factors are yet to be determined for any 2020 prediction to be credible at this point.</p> <p>Fernández’s government has still been quite vague with regards to its plans for social security, public utilities and public debt, all heavy factors in the country’s budget. If Minister Martín Guzmán manages to kick debt maturities a few years down the road, then concerns about the financial or secondary deficit will be pushed towards the future, and the primary equilibrium could be more relevant in the short term. But with negotiations likely to continue throughout the first quarter, no good projections are likely to be possible before April.</p> <p>“The country could have an equilibrium this year thanks to a larger tax collection and despite the decision to freeze public tariffs. But it will all depend on what happens with pension payments and debt negotiation. The level of expenditure will depend on that,” Matías Rajnerman, chief economist at Ecolatina, told <em>The Essential</em>.</p> <h2><strong>Extraordinary incomes</strong></h2> <p>When doing the final numbers for last year’s deficit, the Fernández administration decided to exclude all <a href="">extraordinary incomes</a>, worth 113 billion pesos. Had they been incorporated, it would have meant a smaller primary deficit, amounting to 0.5% of GDP, and a financial deficit of 3.8%.</p> <p>Such numbers would have meant that Mauricio Macri’s administration reached the fiscal goals set in its agreement with the International Monetary Fund (IMF), through which the country received US$44.3 billion. But the deal is now not operational following the debt crisis at the end of Macri’s term.</p> <p>Among the extraordinary income sources, the government listed the sale of assets from public companies, such as the dams Barragán and Brigadier López, transfers from ANSeS social insurance agency for retirees’ payments and the transfer of the national lottery to the Buenos Aires City government.</p> <p>Former Economy Minister during the Macri administration Hernán Lacunza questioned the decision to exclude extraordinary incomes, as “every year there are extraordinary incomes and expenses.” Lacunza also claimed that the social security payments would continue this year, meaning that they should be counted as ordinary instead of extraordinary.</p> <h2><strong>Less spending the key</strong></h2> <p>Overall, the country collected 3.9 billion pesos in 2019, 51.4% more than 2018 and slightly below the inflation rate, as the recession also took its toll on tax collection. The largest income sources were exporting duties, up by 306% in nominal terms following Macri’s emergency hike, and the value-added tax, which increased by 38.4%. Without the extraordinary income sources, the country’s revenue would have grown by a mere 44%.</p> <p>Meanwhile, expenditure reached 4.03 billion pesos, 37.2% higher than 2018, significantly below inflation. Social security payments overall rose 44.5%, with family assistance growing 40.9% and retiree’s payments 44.5%. The biggest cuts were seen in capital expenditure, which merely rose by 12.4%, with negative numbers reported in education, housing and energy.</p> <p>“We were expecting a larger deficit, but soy exporters rushed to sell as much as they could to avoid higher export duties when Fernández took office, which led to a higher tax collection at the end of the year,” said Sebastián Martínez, senior analyst at Abeceb consultancy. “The key was an important reduction in public expenditure.”</p> <p>Although the reduction in primary spending has been a feature of Macri’s administration, the large increase in debt payments have given room to criticism that while austerity is falling on the public’s shoulders, the numbers are still suffering due to bad financial decisions. With big debt maturities ahead and the country closed off from financial markets, even larger spending cuts would be needed to reach a real equilibrium if debt continues to be serviced, likely leading to significant public resistance.</p> <h2>Looking ahead</h2> <p>While highlighting the possibility of a primary fiscal balance, experts were skeptical over the fiscal scenario for 2020. The lack of details on the <a href="">new pension scheme</a> and the uncertainty over debt renegotiation mean that the final result is still very much open.</p> <p>The Macri administration already cut expenses in almost every possible area of capital expenditure, which now creates a challenge for Fernández to find new ways of reducing the budget. Social security payments represent 46% of the annual expenditure of the state, so a <a href="">different scheme for retirees</a> could be one the table.</p> <p>“Any reduction in social security would mean a massive saving for the government. In the rest of the areas of the state there’s no more margin to cut expenditure,” Martínez said. “But that would have a large political cost and could lead to litigation from retirees.”</p> <p>At for the debt, the government is overall facing capital payments of US$48.8 billion and interest payments of US$14.8 billion. About 43% of that debt is owed to private creditors, while 37% are bonds owned by public agencies, which are more likely to accept a re-structuring proposal. The remaining 20% are maturities with multilateral organisms.</p> <p>

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Fermín Koop

Fermín Koop is an economic and environmental journalist from Buenos Aires. He is editor at Diálogo Chino and co-founder of Claves 21.