The government is on course to meet its deficit target for 2018.
Control of primary expenditures and a strong revenue performance led to a new year-over-year drop in the primary fiscal deficit in February. The treasury posted a primary deficit of ARS 20.2 billion in February, from ARS 26.7 billion deficit in the same month one year before. As a consequence, the 12-month rolling primary balance posted a deficit of ARS 397.3 billion, from ARS 403.8 billion in January. We estimate a decline in the primary deficit as a percentage of GDP to 3.7% from 3.9% the previous month.
Total revenues significantly exceeded primary expenditures. Total revenues grew 26.7% YoY in February thanks to strong tax revenues (29.6% YoY, or 1% in real terms). Primary expenditures rose 18.4% YoY as cuts in energy subsidies (-30.5%) and capital expenditures (-15.0%) partially offset higher pension payments (34.3%), and wages increased (16.3%). In this way, real primary expenditures fell by 5.7% YoY.
The government is on course to meet its deficit target for 2018. Last year, the treasury posted a deficit of 3.9% of GDP, 0.3% lower than the official target of 4.2%. The government’s goal is to reduce the primary deficit to 3.2% of GDP this year, which implies a fiscal consolidation of 1.1% of GDP, excluding the extraordinary tax-amnesty revenues collected in 2017. We expect the treasury to meet the target this year due to continued efforts to slash subsidies, higher tax collection due to the economic recovery and the recent changes in the pension-adjustment formula.
Juan Carlos Barboza