Monday, June 5

IMF: with a gradual fiscal path, the most demanding goal is the monetary one

“In 2022 it will be necessary to adjust, but the fiscal goals are quite lax if we compare them with other recent extended facility programs signed by the IMF”, wrote in networks Francis Ballester, director of Mindy-economics. In the program signed with Costa Rica in 2021, the country agreed with the IMF to reach zero deficit this year, while Kenya agreed to converge in 2023.

The starting point to reach a fiscal deficit of 2.5% of GDP in 2022 was 3% of 2021, although this figure was contributed by 0.5% by the extraordinary contribution of large fortunes, which sources within the Government assure that it will not be repeated, despite the claim of a sector of the coalition. Meanwhile, Covid spending in 2021 was 1% of GDP, which may not be required this year.

Despite the drought, and the lower income from withholdings, within the Government they believe that the goal is “realizable”. In the economic cabinet they expect greater consumption and generation of employment due to the growth of the activity, with VAT and employer contributions being the two taxes that generate the highest collection.

On the expenditure side, segmentation in public rates is planned. Energy subsidies represented 2.3% of GDP in 2021, the largest expense after retirement, according to Iaraf. Still, consultancy firm Delphos Investment called the goal challenging: “The rate increase required to reduce subsidies has to be well above what was announced”. A 20% increase in electricity and gas and segmentation for 500,000 AMBA users is planned.

monetary goal

The agreement with the IMF staff proposes lowering monetary financing to the Treasury to 1% of GDP this year. In 2020, with the pandemic, it had been 7.3%, and in 2021 it was 3.7% (4.6% if SDRs are included). For 2023, the Government agreed with the IMF on a goal of 0.6%, and for 2024, 0%.

“The goal is demanding”, defined Alejandro Vanoli, former president of the Central Bank. For the economist, in order to converge to these values, several variables must be fulfilled: that the collection remains high, that the program generates “credibility”, and that there are “positive real rates” to obtain financing from the local market. For the economist, the monetary goal was “harder” than the fiscal one: “Although the IMF recognizes that inflation is multicausal, it has a monetarist vision”.

In any case, he believed that more financing could be lacking, in addition to the local market and 0.9% of GDP from other international organizations: “It is implicit that you are going to have another type of financing in the international market, not an avalanche, but the country risk could go down and there could be some opportunity”. For Vanoli, a factor to monitor will be the rise in interest rates in the United States, which will imply a lower flow of capital to emerging countries.

In 2021, the deficit was financed by 70% with issuance. With the goal of issuing 1% of GDP, and a fiscal deficit of 2.5%, financing should be 40% via issuance, according to Leandro Ziccarelli, CEPA economist. “The goal for 2022 looks aggressive, but it is within the framework of what is possible,” he said.

The reasons why he believes that it can be achieved are: “In 2021, 1.5% of GDP was obtained in financing in the local market with negative real rates. If the market sees that you correct the rates, there is no exchange delay and you go to a fiscal convergence, it will bathe you in pesos, more than the banks are disarming passes. For Ziccarelli, the rate should be raised further, since he considered that it can be done without impacting the productive sector.

In addition, the economist considered that the “greatest challenge” is the fiscal one. “If you reach the fiscal deficit numbers requested by the IMF, the financial will be put in order.” For this year, he believes that there will be no major challenges: “With rates, segmentation, growth, inflation, less Covid spending and public companies, you will arrive calmly,” he concluded.