The government missed the first-quarter fiscal deficit target agreed with the International Monetary Fund by 56%. The situation comes despite a persistent tightening of public spending after a drought drove a sharp drop in revenue from exports.

According to an analysis by the Ecolatina business consulting firm, the fiscal deficit was AR$690 billion (US$3.1 billion at the official rate, US$1.5 billion at the MEP exchange rate) in the first quarter of the year, while the target agreed with the International Monetary Fund (IMF) was AR$441 billion (US$2 billion at the official rate, US$1 billion at the MEP rate). According to Ecolatina’s projections, the Q1 deficit represents 0.4% of the country’s GDP in the first three months of the year.

The deficit goal for the year is 1.9% of the GDP, a 0.6% reduction from 2022’s figure.

“The primary deficit was the third highest in the last thirty years,” said the report.

The government and the IMF signed an Extended Fund Facility agreement in 2022 after renegotiating the US$44 billion debt former President Mauricio Macri acquired in 2018. The deal includes an economic program that Argentina must comply with in order to receive disbursements every three months, which are used to pay for the previous debt with the IMF.

According to Ecolatina, the government’s income (adjusted for inflation) fell by 21.4% in March, compared with the same month in 2022. The consulting firm says the historic drought was the main culprit behind the drop, as export duties (retenciones) –a tax on gross income obtained from exports of key agricultural crops such as soybeans – fell 84% adjusted for inflation. The “agro dollar III,” a preferential exchange rate for agricultural exporters launched in April, aims to partially moderate the decline.

The fiscal deficit would have reached just 40% of the final Q1 figure if the government’s export duty collections had remained stable in real terms, meaning that it would have over-complied with the IMF’s targets, the report stated. The government over-complied with the primary deficit goal for 2022.

Both Ecolatina and another consulting firm, the Argentine Center for Political Economy (CEPA), concluded that, in March, public expenditure was slashed by 17%. The government continued austerity measures, mainly by cutting energy and other subsidies. Social spending on items such as pensions also fell significantly.

However, both consulting firms say this was not enough to compensate for the reduction in income.

“For the IMF to approve the fifth review, which will start on June 10, the goals should be changed or another waiver should be asked for,” the report by CEPA concluded. “It is worth recalling that another [waiver] will be asked for the international reserve target.”