On Saturday, July 3, exactly two weeks after the Minister of Productive Development resigned, the Minister of Economy, who a few days before had made a public pronouncement on the need to reduce the fiscal deficit. On Sunday, July 4 at night, the appointment of the new manager was known, Silvina Batakis, second woman in the history of that Ministry. The times were very lengthy in terms of eventual analyzes since they allow us to see the starting point of this new stage of the Administration -with the presidential election in sight- with the income and expenses and the financing situation of the treasury closed -or a approximation to the closing- to the first semester.
Even after last Monday’s speech, in which the minister -surrounded by a large part of the economic cabinet- proposed as a priority -in a conjunctural way- the achievement of fiscal balance and defined an unwritten fiscal rule of zero cash deficit in practice , singularly little is known about what will actually happen in the coming months or, put in other terms, how much this Administration will want -and will be able- to sustain an adjustment, in a situation in which the weakness of the government and the instability of the economy are extreme.
The resignation of Minister Martín Guzmán took place in a very rarefied climate, with inflation, devaluation and financing to the treasury by the Central Bank accelerating in recent times, within the framework of some disorder in the Treasury tenders for public securities in pesos; with the price of bonds falling and the exchange gap exceeding 100% in relation to the exchange rate for operations with the BCRA.
Thinking about the future is only proposing possible scenarios without even being able to assign any range of probability of occurrence to the different alternatives. So let us be content with knowing what the starting point is.
What is the fiscal situation that the new head of the Ministry of Economy receives if we restrict ourselves to the National Administration, since that is the information that is available for the first semester? According to the Open Budget data published on the Ministry of Economy website, in the first semester of the year the National Administration will have had a deficit of 5.7% of the equivalent GDP of the period; a year ago that deficit totaled 3.2% of GDP. Net of interest payments, the respective negative results are reduced to 4.1% and 1.6% of GDP, respectively. In fact, the deficit for this first semester is similar to that of the second semester of 2021 (4% of GDP).
It is true that in terms of income, so far in 2022, the totality of Treasury income that is shown in the information of the National Non-Financial Public Sector in its cash version does not seem to be included in that classification, nor did resources enter concept of solidarity contribution that last year represented 0.8% of GDP; It is also true, and this works in the opposite direction to the previous aggregates, although its magnitude is smaller, than this year it is. In June, resources were received for the payment of the balance of the declarations of Personal Assets and Earnings of natural persons that a year ago had only been made effective in August.
In the first half of the year, the National Administration will have had a deficit of 5.7% of the equivalent GDP for the period; a year ago that deficit totaled 3.2% of GDP
When it comes to spending, basically what you have is a rise at the primary level of 10% in real terms, which goes from 18.6% of GDP in the first six months of 2021 to 20.2% in the same period of 2022. It must be considered that in the first half of 2021, 48.4% of the current budget had been executed, while now only 43.9% of the recently “updated” budget was used.
On the other hand, in the comparison of the respective semesters, there are some winning jurisdictions and others losing ones that give some indications to take into account. For example, of the total primary expenditure accrued, the Ministries of Economy and Social Development have each gained a 1.1% share so far in 2022 compared to the same period in 2021, while those of Public Works, Work, Productive Development and Health each lost between 0.9 and 0.7% of participation.
A very curious fact is that Until now, the Ministry of Productive Development has executed barely 17% of its current budget.. At the other extreme, the Public Ministry, the Ministry of Women, Gender and Diversity, and the Ministry of Social Development have spent 59%, 57% and 55.3% of the total assigned for the year, respectively. One might wonder if the real increase in primary spending of 10% in the comparison between the first half of 2022 and 2021 is actually low considering the increase that the second half had meant compared to the first last year, when the Government He put everything he had and what he didn’t have in order to achieve good results in the midterm elections.
What we have there is that primary spending, in real terms, is down 15%. It happens that, at the same time, resources fell by 19.6% also in real terms. There is no way, then, to think that there is, there, some space. On the other hand, beyond the so-called Platita Plan, it is true thatIn general, the second semesters are more expansive in terms of expenses than the first.
In short, with or without compliance with the Agreement with the IMF in the second review (corresponding to June 30) in which apparently, according to what the government revealed, only the reserve goal would be breached -and this is because no resources were received since multilateral organizations other than the IMF-, it is clear that reducing the fiscal deficit is a necessary condition for this economy not to suffer a shock. And the reduction of that deficit also necessarily requires, and even when there could be some extraordinary income, the reduction of spending.
Reducing the fiscal deficit is a necessary condition for this economy not to suffer a shock
The easiest way, the cut to public works, is already clearly seen in the numbers that we describe here, and there may still be space, but it is not enough. Bearing in mind that 46.5% of primary spending is headed by the Ministry of Labor and Social Security, and that there is not much to do in terms of reduction in the short term, energy subsidies remain the possibility and the big question mark.
This note was published in Situation Indicators of FIEL 643, July 2022