Serge Massa he will travel to Washington this Tuesday evening to participate in the annual meetings of the IMF and the World Bank. These forums will be the stage where the Minister of Economy and his deputy, Gabriel Rubinstein, will seek to strengthen support for their roadmap to stabilize the economy, a plan that includes the imminent arrival of funds from multilateral organizations and investments in strategic sectors such as energy.
The trip will take place in the midst of the change of government and after hearing the outcome of the Fund’s second review, in which the board approved two of the three goals, warned about the risks and added recommendations. The list includes a a further adjustment of rates, a sharp reduction in social spending and an increase in property-related taxesmeasures needed to “make room” for infrastructure investments and electoral spending in 2023.
To reduce the primary deficit from 2.5% in 2022 to 1.9% of GDP in 2023, a spending cut of 1.3% of GDP ($ 1 billion) and, within this scheme, subsidies are expected to be reduced by 0.5%, mainly from ongoing tariff segmentation. The Mass plan provides for the removal of subsidies in three phases – the start of which has been postponed from September to October – and in four categories (high, medium, low income and businesses).
The Staff Report, however, argues that the energy policy could advance in other changes: 1) a database update (RASE) with reduction of the number of unregistered users, 2) link prices to costs rather than wages3) “less generous” consumption ceilings for medium sectors and new ceilings for low incomes, and 4) a possible reduction of the universe of beneficiaries of the social rate.
Tariffs are a sensitive issue. For specialists, the Government should apply in 2023 a further increase of 80% on average (in the medium sectors) so that the fiscal target is reached and the bills cover half of the energy costs, which is what the Executive Power promised. . But the adjustments in place, added to those of transport, fuel inflation that this year would close to around 100% and would generate tensions with Kirchnerism.
Social spending is another item targeted by the Fund. The technicians emphasize the efforts for reduce the “indexation” of programs (preventing them from following inflation), hiring beneficiaries with business tax incentives and revising plans. Instead, they predict a decline in the participation of pensions in GDP in 2023 due to the change in the mobility formula in 2020, which linked to wages and past income.
Thus, in the midst of the tug-of-war over the definition of a bonus for the indigent financed with the “soy dollar” and the resignation of the Minister of Social Development, Juan Zabaleta, the agency foresees a reduction of social assistance by 0 , 7% of GDP in 2023, 0.2% in retirements and 0.1% in transfers to the provinces. If the prediction is satisfied, social programs will be pruned by $ 560 billion.
“Strict macroeconomic policies are not only needed to ensure program objectives, but also to gradually moderate domestic demand, cope with persistently high inflation and avoid disorderly adjustments. Fiscal consolidation will require better budget management, along with a better targeting of subsidies (energy, transport and water) and social assistance, while protecting key investments in infrastructure, “says the staff report.
As for taxes, the Fund provides the decrease in tax exemptions, a chapter that Massa has included in the budget and within which is the Tierra del Fuego promotion scheme and exemption from payment of the Magistracy’s Earnings. An improvement in the collection of Personal Assets is also expected due to the real estate revaluation committed and a “segment” plan of the tax base based on “risk”. Overall, however, funding is expected to decline by 0.8% of GDP in 2023.
Source: Clarin
