IMF fiscal deficit goal remains despite drought and moratorium

Economy Ministry sources say the first trimester will be the hardest to achieve.

The Economy Ministry, led by Sergio Massa, moved forward on softening the reserve accumulation target  set by the International Monetary Fund (IMF). Yet they will uphold the fiscal deficit goal of 1.9% of the GDP despite lower tax revenue  and higher spending due to the pension moratorium. With that in mind, the IMF demanded a faster increase in energy prices, but ministry sources say that social welfare and public works will not be affected.   

When asked about plans to renegotiate the deal, as Vice President Cristina Fernández de Kirchner suggested  last Friday, sources at the Economy ministry answered: “We are already doing that, we’ve been fighting with the IMF for two months.” 

Sources close to Massa added: “People said the hardest goal would be the accumulation of bank reserves, and instead of discussing a waiver, that changed, there aren’t many deals that change their goals early in the year”. 

They also said that the moratorium was passed despite the original IMF agreement established in its articles that there wouldn’t be “new fiscal amnesties”.

In spite of the lower tax revenue due to a historical drought, the fiscal deficit goal will not be modified. Also, sources in the Economy ministry say that the quarterly deficit goals stated in the agreement for April-June and June-September —before the presidential elections— enable a greater “fiscal freedom”.  

As the opposition claims that there should be a greater effort to lower spending in order to have political cooperation, like the Secretary of Economic Programming Gabriel Rubinstein said, ministry sources respond: “You can’t bring the fiscal goal any lower in a year with a drop in tax revenue due to the drought, and with much of the spending being inelastic”. 

Despite the Economy ministry’s plans to meet the goal for 2023, sources anticipate that doing it in the first quarter will take “hard work”. The January fiscal deficit was 0.12% of the GDP, and the February one will be released next week, but ministry sources informed that it will be “similar”. Hence, there will be little margin for March, when the IMF goal is AR$441 billion, 0.3% of the GDP. 

“We’ll have to work hard”, said sources in the ministry, and assured that “the idea is not to use the floating debt, because that is sloppy.” 

“If there is a need to implement tougher policies, social welfare and public works will be protected,” said official sources. 

In any case, Economy ministry staff members are confident that the second quarter will be “better” than the first one with the arrival of the coarse grain crop. They hope that “if it rains in the next 20 days” the forecast for the drought will be less bad, which would provide dollars but also improved tax revenue through the export duties, which were hit the most in the first two months. . 

In the face of a lower tax revenue and higher spending due to the moratorium, right now the actual measure anticipated by Economy sources is to “speed up the rise of utilities prices.” The IMF statement mentions “eliminating subsidies for high-income residential users starting in May, and for commercial users by late 2023.” Sources in the ministry added: “what the IMF is asking is that we finally implement price segmentation.”

People in the Economy ministry admit that the segmentation has been “delayed” because they believe there are people who should get the subsidies but didn’t register in the Subsidies Access Registry (Rase), which explains why there is so much government publicity for the registration. 

“We will extend the March deadline to mid-April to provide more time, especially for people in the provinces,” they said. “What the IMF is asking is that we apply the expected seasonal hike of energy prices to everyone in Level 1, but we won’t do it until we are not certain about who is in that one.” 

Also, the pension moratorium passed by Congress, which enables 800,000 people to retire, will also bring greater pressure to meet the goal. Sources in the ministry said that after the bill was passed they had “discussions” with technical staff and had to “reevaluate” some projections, since these are retirement plans for the following years. They specified that a portion of the moratorium is already considered in the 2023 budget, but they added that “if there’s a difference, we’ll have to make compensations”. Ministry sources also said that the IMF wants the moratoriums to follow a “social-economical criterion,” such as credit card spending, to make sure they go to “the ones who need it”.

Originally published in / Translated by Agustín Mango


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