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ECONOMY | 23-04-2024 13:47

The spending cuts that allowed Milei to turn around Argentina's economy

How did the government reach a budget surplus in the first quarter? A private study provides answers.

Argentina’s budget surplus, announced by President Javier Milei in a speech on Monday night, was built on the basis of spending cutbacks that outweighed a fall of income and debt interest payments, according to a private study.

Work by the IARAF Argentine Institute of Fiscal Analysis consultancy firm specified that the “March analysis shows that the total income had a real negative variation of 8.6 percent, as against a decline of tax income by 8.6 percent, whereas non-tax income fell slightly in real terms.”

In turn, primary expenses fell by 28.6 percent year-to-year in real terms (deducting inflation).

“As a result, the primary deficit became a primary surplus of 625 billion pesos,” wrote the IARAF. “Interest expenses dropped by 31 percent in real terms from the same month last year. Consequently, a fiscal deficit turned into a 276-billion-peso fiscal surplus.”

During the first quarter of the year, total income fell by 4.5 percent in real terms, whereas primary expenses decreased by 35 percent in real terms, said the firm.

“It is worth noting that this real variation of primary expenses turned out to be the highest real year-to-year variation of the last 30 years for one quarter,” the study pointed out.

It added that “as a result, the primary surplus amounts to 3.868 billion pesos, which would account for 0.6 percent of the GDP, while the fiscal surplus (after the payment of interest) amounts to 1.133 billion pesos, which would be 0.2 percent of the GDP.”

IARAF indicated that in the first three months of the year, 15 of 16 categories of spending were found to have declined in real terms, with the exception of universal social protection allowances (10.6 percent).

Expenses with the greatest drops were: capital transfers to provinces (down 98.4 percent), direct real investment (down 82.5 percent) and current account transfers to provinces (down 76.3 percent).

IARAF specified that “in the first quarter of the year, the paid national public expenditure went down by 8.3 trillion pesos from the first quarter of 2023.” 

The report said: “It was found that pensions withstood 35 percent of the total reduction, real direct investment 15 percent, transfers to provinces 13 percent, energy subsidies nine percent and salaries seven percent, among the most significant ones.”

According to these results, “the fiscal adjustment over the first quarter accounted annually for six percentage points of the GDP,” after a January featuring an eight-percent drop and a cumulative seven-percent drop for the first two months of the year.

These assertions are in keeping with a report by Analytica consultancy firm, which stated that expenditure on pensions was reduced by nearly 35 percent in March. 

It also highlighted the almost entire elimination of discretionary transfers to Argentina’s provincial governments and the cessation of public works projects without international funding.

An improved cereals harvest has been key to the turnaround, recording a 27.4 percent rise in revenue in the quarter compared to the same period last year. A near seven-percent drop in energy imports also contributed. 

 

– TIMES/NA

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