Primary fiscal deficit fell again in August, relative to the same month of 2016
Argentina’s primary fiscal deficit fell again in August, relative to the same month of 2016. The primary balance came in at a deficit of ARS 24.6 billion in August, compared with a deficit of ARS 35.4 billion registered in the same month one year ago. So, the primary deficit accumulated over the last 12 months has now fallen to ARS 362 billion, from ARS 372 billion in July and ARS 375 billion in June. According to our estimates, the deficit stays at 4.0% of GDP, below the Treasury’s 2017 target of 4.2%.
Revenues grew in real terms, driven by the economic recovery. Tax revenues increased by 29.6% year over year in August, marking a new gain in real terms (6.2%, after a 5.3% increase in July). Primary expenditures contracted in real terms due to the adjustments in subsidies. Primary expenses increased only 17.4% yoy in nominal terms in August (-4.5% in real terms).
During the first eight months of the year, revenues grew more than expenses. Revenues increased by 31.3% yoy, helped by the collection of penalties related to the tax amnesty program. Excluding these extraordinary revenues, total revenue rose by 27.2% yoy. On the other hand, primary expenditures posted a 28.2% increase in the same period, led by pension payments (42%), capital expenditures (29.7%) and payroll (30.2%), which was partially offset by a 13.6% cut in subsidies from the same period in 2016.
The government is committed to a gradual fiscal consolidation. The Treasury ratified its primary deficit target of 3.2% of GDP in the 2018 budget bill that was sent to the Congress. The fiscal consolidation relative to 2017 comes mostly from a reduction of 1 pp in the primary expenditures/GDP ratio. The adjustment reflects a budgeted drop in the subsidy bill, estimated to be 0.6% of GDP, and additional cuts in administrative expenses that will offset a minor increase in pension and social benefits (0.1% of GDP). We note that while the government plans to keep the expenditures in infrastructure flat as share of GDP, it nevertheless expects higher infrastructure expenditures in 2018, led by public-private partnership initiatives (up to 1% of GDP). We think that this is a positive step; however we note that meeting the 2018 target will be challenging, especially considering the absence of resources related to the tax amnesty.
Juan Carlos Barboza