Throughout 2023, The accumulated primary deficit was equal to 2.7% of annual GDPan increase of 0.4 percentage points compared to the previous year’s fiscal red.
This result reflects the deterioration of public finances throughout last year, between a drop in revenue generated by drought and lower activity and a spending cut that was slowed down in the second part of the year also due to the “small plan” with which former minister Sergio Massa tried to win the presidential elections.
Official spreadsheets show that the 0.4 percentage point increase in the deficit stems from this a drop in primary spending by 0.6 percentage points and in income by 1 point.
With these numbers, the previous government distanced itself from the commitment undertaken with the Monetary Fund and which envisaged closing with a primary deficit – without counting the expenses for the payment of the debt – of 1.9% of GDP.
Now the administration of Javier Milei has proposed an aggressive adjustment of the organization and has promised to carry it out a primary surplus equal to 2% of GDP.
If you count the interest on the debt, Last year’s fiscal deficit rose to 6% of GDP, with an increase of 1.8 points compared to the previous year. “Interest spending increased substantially by 1.4 points of GDP compared to 2022,” indicates economist Nadin Argañaraz, director of the IARAF.
Throughout 2023, Real primary expenditure fell by 4.9% year-on-year over the period under review. Family allowances (37.3%), energy subsidies (23.5%) and non-contributory pensions (21.2%) significantly decreased. At the same time, the three items that increased the most were subsidies for other functions (109%), capital transfers to provinces (25.2%) and INSSJP benefits (19.5%).
For his part, real total income decreased by 6.7% during the year, according to IARAF estimate.
The note from the Ministry of Economy specifies that primary spending by the national public sector was recorded in December a decline of 6.2% year-on-year in real terms. “This dynamic was a consequence of the prudent execution of discretionary spending since the new administration took office, to which was added a strong real contraction in social benefits, largely explained by the delay in the mobility formula”.
Furthermore, they specify that the decrease in primary spending “occurred simultaneously with the effort to reduce the amount of floating debt accumulated in the previous months, which amounted to $3,055,377.7 million to December 9th”.
The execution of national non-financial public sector expenditure and revenue for the month of December indicates that the primary deficit increased by 27.3% in real terms compared to the same month in 2022. This was a consequence of the fact that Total national income fell 16.6% in real terms year-on-year and primary spending fell 6.2% year-on-year.
Within primary spending, the three expenditures that decreased the most in real terms were the universal allocation for social protection (49.6%), capital transfers to provinces (43.6%) and direct investment real (39.1%). And the three items that increased the most were energy subsidies (269.6%), subsidies for other functions (162.4%) and other current expenses (85.5%).
Moreover, Interest on debt grew by 340.2% in real terms year-on-year.
For Aurum values, “The interest amount for the December fiscal result was surprisingly high. The reported amount was $3,339,120.6 million which is equivalent to 1.7 of GDP. We believe that the rescue of DICP and TDF24 by BCRA holdings was incorporated into this amount. If the value of the interest had been adjusted by discounting this bailout, the interest payment would have been approximately 410 billion dollars (figure more in line with what we expected and more in line with the OPC information, available here). The fiscal result for the year was therefore an overall deficit of 5.9% of GDP, although if the amount in question had been subtracted it would have been 4.4% of GDP.”
The Milei government’s goal of closing this year with a surplus appears difficult to achieve. The economist Salvador Vitelli underlines that in Argentine history, “63 years, 57 of them had a deficit averaging 4% of GDP per year. It is imperative that Treasury discipline changes.”
Source: Clarin
