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Dujovne: ‘Argentina Will Converge to Primary Fiscal Balance in 2019’

The Economy Minister made the announcement right after Macri's address.

By | [email protected] | September 3, 2018 12:43pm

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Treasury and Finance Minister Nicolás Dujovne confirmed in a press conference today the government will seek to reach primary fiscal balance – that is, without taking into account sovereign debt payments – in 2019. The Minister indicated that practically half of the 2.6 percent of the GDP that will be slashed next year will come from a reduction in fiscal spending, while the rest will be a result of tax increases, mainly to exports on goods and services.

“This means we will save an extra US $6 billion that we will not need to finance in the markets,” he said.

Dujovne went on to say that the government aims to reach a primary surplus of 1 percent of the GDP in 2020, and for the number to continue growing in order to face sovereign debt payments with debt revenue.

“For 70 years now, Argentina has had a chronic fiscal deficit that has resulted in poverty, inflation, and crises from which we have to emerge. The country has only had a surplus for extremely brief periods,” said Dujovne before moving on to presenting documents explaining how the state will reach fiscal balance next year.

This is how the government plans to do so:

  • Reduce spending on public investment by half, a figure that will represent the equivalent of 0.7 percent of the GDP.
  • Further eliminate subsidies in areas such as transportation and energy for an equivalent of 0.5 percent of the GDP. Dujovne said that nonetheless, this will not result in new increases in public transport and gas and electricity bills – other than the ones that have already been announced – but indicated the state will be able to reduce this expenditure by transferring the subsidies to municipal and provincial administrations, most of which are in a better fiscal situation than the federal government.
  • Scrap 0.2 percent of the GDP by reducing the state’s operational costs – it will spend 20 percent less – and freeze hiring in the public sector, as well as refrain from granting raises that are above the inflation rate. It is also planning on reducing current expenses for the equivalent of another 0.2 percent of the GDP.
  • However, in order to mitigate the impact the crisis has and will continue to have on the most vulnerable sectors of society, the state will increase welfare spending by 0.3 percent of the GDP.

Photo via Treasury Ministry

With respect to the increase in revenue, the state will impose taxes on exports, something that will report an extra 1.1 percent of GDP. The state will withhold AR $4 for every US dollar from primary sector exports, and AR $3 from all other exports, until the end of 2020.

Photo via Treasury Ministry

Dujovne anticipated the economic output will shrink more than expected this year, and indicated the ministry he leads has also reduced growth projections for next year.

When the government reached the US $50 billion stand-by agreement with the International Monetary Fund in June this year, it committed to reducing the fiscal deficit to 1.3 percent of the GDP by the end of next year. However, as the crisis did not abate as a result of it and in fact exacerbated in the past week, the Macri administration requested the fund to expedite the disbursement of all funds – initially projected to end in 2020 – in 2018 and 2019.

Dujovne will travel today to Washington, D.C. to continue negotiations with the Fund, which nonetheless has already expressed its willingness to revise the agreement. In a statement issued last Friday, IMF spokesperson Gerry Rice stated that “Argentina has the full support of the Fund.”