IMF Raises Concern About Economic Relief Measures

The Fund warns that the government’s aid package will cost 0.4% of GDP and calls for “tighter fiscal policies”

The International Monetary Fund (IMF) estimated that the federal government’s economic relief measures will carry a fiscal cost of at least 0.4% of the GDP, “adding to fiscal pressures going forward.” The Fund’s agreement with Argentina stipulates that the primary fiscal deficit target for 2023 must be kept at 1.9% of the GDP. To achieve this, it has recommended cuts in subsidies, public wages, and social welfare programs, and that the government reexamine its moratorium on social security.

The IMF listed these measures in its most recent staff report, which it released after the disbursement of US$7.5 billion. The report indicated that the Fund had approved its fifth and sixth reviews, and provided new goals for 2023.

The document summarized “recent developments” in the Argentine economy, stating that “the fiscal deficit increased significantly” due to the drop in export revenues caused by the drought. This increase was only “partially” offset by spending cuts. IMF staff also indicated the accumulated primary deficit up to June increased to 1.1% of the GDP, due to a 9% drop in revenues and a 6% cut in public spending “led by sharp reductions in energy subsidies (15%), budget transfers to state-owned enterprises and provinces (25%), and pensions (9%).”

The IMF released its report on Friday, two days before the relief-measures package was announced. That package amounts to approximately AR$729 billion according to the Federal Administration of Public Income (AFIP, its spanish acronym). The Fund’s report acknowledged that the measures would provide relief for households, along with small and medium businesses; “one-time bonuses” for pensioners and students; and larger subsidies for credit card purchases.

But these measures ultimately went further than the Fund had expected. Economy Minister Sergio Massa announced a AR$37,000 bonus for 7.8 million retired citizens and that the AR$60,000 bonus for workers will be managed by the state through tax down payments from micro and small businesses. For unified tax-paying workers, better known as monotributistas, the state will cease to collect taxes from those in categories A, B, C, and D. Nearly 2.4 million low-income workers will receive additional credit to their Alimentar cards, and the Potenciar Trabajo workforce program will be expanded to 1.3 million beneficiaries. The banks will also offer credit loans with subsidized interest rates. 

Still, the IMF insisted that the primary deficit target of 1.9 percent of GDP must be met. Up until June, the deviation from the agreed-upon figure was around 0.3% of the GDP, reflecting weaker-than-anticipated export duties and “higher current expenditures, including on the public wage front.” For this reason, the IMF demanded “tighter fiscal policies” for the second semester, which should result in lowering public spending by 11 percent in real terms between August and December.

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In order to achieve this, the IMF says the Argentine government must focus on five points. These include:

  • an improvement in revenues through the “PAIS” tax on imports, which would provide 0.8 percent of the GDP until the tax is phased out in early 2024
  • cutting public wages, which the Fund claims have been increasing 7% annually and should end the year at 3% as the result of “a real decline in the wage bill of around 5 percent year over year from August to December” 
  • raising electricity tariffs on low and middle-income residential users, as well as smaller commercial users, while ensuring that high-income residential users and larger commercial users pay full cost by the end of 2023 
  • addressing the number of pensioners, as Argentina previously approved a pension reform that allows 800,000 people to apply for a moratorium, with around 75% collecting the minimum amount. (Approximately 130,000 people have applied already) 
  • more carefully auditing the Potenciar Trabajo to strengthen the workfare program 

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Originally published in / Translated by Agustín Mango


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