After Sergio Massa’s efforts in the US to get relief on the external front, the IMF eased demands on reserve buildup by US$1,800 million, but he kept the promised level of fiscal adjustment and called for further measures. This means that, despite calls for a revision of the agreement and the deteriorating economic situation, the Government will have to continue to reduce spending to reach a primary deficit of 1.9% in 2023.
The agency’s Executive Board released the so-called staff report on Monday, an extensive report that is generally released after the approval of the revision of the objectives, which took place last Friday together with the disbursement of US$ 5,400 million. There, he announced new targets for net reserve accumulation, which imply relief for the government amid the drain on reserves from the Central Bank, which lost more than $3.2 billion for the year.
“Net reserve goals for 2023 have been revised downwards by $1.8 billion with most revisions taking place in the first half of 2023 to reflect the impact of the drought, which is estimated to be in excess of 5,000 Millions of dollars considering lower energy import prices Achievement of quarterly goals will require major political efforts, including on the trade front”he watched the report.
On the other hand, the organ confirmed its thesis according to which a tightening of tax measures maintain the program agreed in March to refinance the US$ 44,000 million credit contracted by Mauricio Macri’s management in 2018. The focus is on energy subsidies and tariff increases, as well as on social plans, in a context of lower revenues due to the impact of drought.
“Continued compliance with fiscal targets will require the timely implementation of high-quality measures, especially on the energy front and social assistance, to compensate for lower export taxes due to drought and to make room for priority spending on infrastructure,” notes the staff report. Adding that “mitigate the cost of the unfunded mandate created by the new moratorium on pensions.
The government, according to the report, has proposed reducing the fiscal adjustment rate to end the year with a primary deficit of 2.02% of GDP. In recent days, La Cámpora has insisted on “re-discussing” the agreement in view of the increase in poverty to over 40%. But the Fund maintained its fiscal target, forecasting a drop in funding of 1.1% of GDP and a reduction in spending of 1.5% of GDP, from which we can deduce a primary deficit of 1.9% of GDP.
“The risks to the program are now higher due to the less favorable economic environment and the growing difficulties in implementing policies. A worsening drought could further reduce agricultural exports and foreign exchange inflows, with negative implications for growth, reserves, inflation and fiscal balances,” the board report said.
In the midst of the banking crisis following the collapse of three banks in the US and the tremors of two others in Europe, the Fund also warned that “slower global growth than expected or tighter global financial conditions could adversely affect Argentina, particularly through contagion effects on commodity prices and the local debt market.”
The agency also warned of accelerating inflation, which in March would exceed 7% per month, according to private calculations. “The implementation risks of the program remain very high given the complex economic, social and domestic political situation. Higher inflation and much lower growth could fuel social unrest and undermine support for the programme, particularly given the election cycle,” he said. The IMF estimates the annual inflation at 79.6%.
In this context, he added, “contingency planning and agile policy will be imperative to improve the programme’s likelihood of success, and further tightening and adjustments of exchange rate policies may be needed.” “The Fund continues to tackle important institutional risksas program risks cannot be fully mitigated,” the report said.
Source: Clarin
