Pena vs. Governors friends: between the emergency and the short blanket

The staff of the Monetary Fund adjusted down the estimate of the collection for this year. It calculates that 10 billion less than what was expected at the end of last year will be added to the AFIP, a figure that represents something like 1.7% of GDP. They believe that the shortfall can be compensated with “a combination of higher inflation, more growth and discretionary falls in spending”.

The accounts that the Fund made for the Government to cover that 1.7% of GDP in the collection are as follows as shown by the staff report published this Friday: 0.75% of GDP would be recovered thanks to the reduction of salaries and pensions as a result of higher inflation, 0.3% of GDP due to the decrease in transfers to the provinces due to the fall in revenue and its impact on co-participation. Another similar percentage due to the reduction of subsidies.

There would still be a deficit of 0.4% of the product to cover. “As Argentine officials reiterated their commitment to meet the goal of zero fiscal deficit for this year, they noted that they will try to close the remaining fiscal deficit of 0.4% of GDP through reductions in capital spending and savings for more efficiency in social spending with the lowest priority. The IMF staff warned that any reduction in investment should not affect “the highest quality projects.”

Also, the agency recommended alternative measures in case the collection does not reach. It is estimated that the income will be 3,661,800 million instead of the 3,671,600 million expected last December. “The disappointing collection of recent months suggests that the weak economic activity and administrative difficulties reduced the tax firmness making that previous estimate optimistic,” the Monetary Fund said in its work published on Friday after the meeting of the Board of Executive Directors.

What does the IMF propose to bring compliance to the zero deficit? Reduce subsidies more. Eliminate tax exemptions (the report does not mention it, but read the case of judges that do not pay the income tax) Increase VAT differential rates for certain goods that are applied 10.5% instead of 21%. Undertake a study to identify those taxpayers who are incorrectly registered as monotributistas.

In the Treasury, these recommendations of the IMF regarding the need to encourage new tax measures this year, which need legislative treatment, are considered “unrealistic”. “Many were tried with the tax reform of 2017 and this year there are elections,” they comment near the Minister of Finance, Nicol├ís Dujovne. The IMF itself recognizes that the margin of maneuver of the economic team as the elections approach is “limited”.

Market expectations that the government reach fiscal balance this year is deteriorating. According to the latest BCRA survey, the expected fiscal deficit for this year is 80,000 million and at the beginning of the year it was 5,600 million.

If the market’s perception of the fiscal failure for this year grew in recent months, so did the questions about the sustainability of the debt. This was recorded in a recent meeting between investors and the representative of the Monetary Fund in Buenos Aires days ago, when he suggested that Argentina could qualify for a longer-term program and repay the total loan amount (about US 57.6 billion) to longer term

Hacienda published in its latest version of the 2019/2020 financial program a 7% adjustment in public spending compared to 2015. According to an estimate by the consultancy Econviews, the primary fiscal surplus needed next year to stabilize the growth of public debt will be it places between 1.5% and 2% of GDP.

Richard Addington

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