After approving the seventh program review with Argentina and shelling out $4.7 billion on Wednesday, the International Monetary Fund expects energy rates to rise as much as 200% in February and anticipates rising transportation rates, as part of the adjustment plan agreed with Argentina. Javier Milei’s government to eliminate subsidies and reduce the fiscal deficit.
In the information report, the IMF indicated that in principle the tax system will be supported by a spending cut of 3% of GDP, with “reductions in inefficient energy subsidies, with initial increases in electricity tariffs (more than 200 %) and gas (more than 200%) above 150 percent) starting in February, after the public hearings.
“The rationalization of inefficient energy subsidies, which will initially be supported by an adjustment of electricity and gas tariffs starting in February, to bring them into line with rising generation, transport and distribution costs and ensure the reduction of 0.5% of GDP of energy subsidies,” the agency noted in its report.
In that line, The Government is preparing the press releases for the next few hours. According to official sources, the Minister of Economy, Luis Caputo, has decided to postpone the increase in gas tariffs scheduled for February 1st until March. But I anticipate the update of the wholesale electricity price (PEST) in the next few hours. The idea is that the adjustment falls only on families with the highest income (level 1).
The Electricity Regulatory Authority (ENRE) published resolution 83 on Wednesday approving the final report of the public hearing, so the next step will be the publication of tariff tables.
In this way, according to the plan being examined by the authorities, the middle sector (level 3) and the low-income sector (level 2) would remain, for now, with the same rates, which implies that subsidies will be maintained for longer. more than half of residential users, in a context in which a new record of electricity consumption was recorded on Thursday and more than 40,000 remained without electricity due to the heat wave.
The change of plan is due to official concern to soften the impact of tariffs on inflation, in the midst of a flurry of increases, to which this Thursday was added a 6% increase in petrol due to the updated fuel tax fuels. In this context, the Economy has decided to focus on electricity, due to its greater weight in subsidies.
Strictly speaking, the Fund estimates that “inflation will accelerate in the near term as relative price imbalances and other price controls are eliminated.” Against this backdrop, inflation was expected to exceed 25% in January due to the correction of distortions and the abandonment of controls, after reaching 25.5% in December following the devaluation.
During the public hearing on electricity tariffs, Energy Secretary Eduardo Rodríguez Chirillo warned that the system is “on the verge of collapse” and AMBA’s two utility distributors, Edenor and Edesur, proposed tariff increases . around 90%, while asking for updated monthly adjustments for inflation.
In the case of gas, distributors and transporters have asked for increases of between 400 and 700% with monthly inflation adjustments.
The Government seeks to replace the segmentation of subsidies for electricity and gas implemented by the administration of Alberto Fernández, with an energy basket for “vulnerable” sectors. The idea is to gradually reduce subsidies in February, March and April until they are completely eliminated, but definitions are lacking. “We are still working on it,” official sources said.
After an “initial increase in February”, the Fund also expects gas and electricity prices to rise rapidly above the real cost value in April, and awaits the implementation of the new subsidy regime limited to low-cost sectors. income and tied to basic energy consumption based on size and geographic location, which will come into force in April.
The government has promised to achieve a primary surplus of 2% of GDP in 2024, through a 2% tax increase and a 3% spending cut, within which subsidies accounted for 1.3 points last year . If the current pattern were maintained, this spending in the electricity sector would amount to $5.23 billion in 2024, according to official calculations.
Among other spending reduction measures, according to the IMF, is the increase in urban transport fares (with the exception of beneficiaries of social assistance), something on which no progress could be made. The idea was that 250% increases would be implemented this Thursday, with minimum fares of $270 for bus service and $130 for rail service, but they were suspended due to a court order.
Source: Clarin
