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Argentina: Fiscal Accounts Under Scrutiny Summary

Core Content

This document provides an analysis of Argentina's fiscal performance in 2018 and outlines the challenges expected in 2019, particularly in terms of fiscal adjustment and regaining market access. It is authored by Florecia Vazquez, an Economist at BNP Paribas Sucursal Buenos Aires.

Main Points

Fiscal Performance in H1 2018

• 2018 fiscal target was beaten: The primary deficit for H1 2018 was ARS122.6bn, which is below the official target of ARS148bn.
• Deficit vs. target: The difference between actual and target deficit is 0.2% of GDP.
• Primary spending contraction: Primary spending contracted by 5.6% year-on-year in real terms, indicating a disciplined fiscal approach.

Outlook for H2 2018

• Overcompliance likely to continue: The performance in H1 suggests that the government may continue to beat its fiscal targets in H2.
• Forecast for 2018: The primary deficit is expected to be 2.5% of GDP for the full year, slightly below the 2.7% target.

Fiscal Challenges in 2019

• More challenging target: The 2019 primary deficit target is set at 1.3% of GDP, which is more difficult to achieve than the 2018 target.
• Reliance on spending cuts: The fiscal adjustment in 2019 is expected to rely more on expenditure reductions, as revenue growth may not be sufficient.
• Social conditions cushion: The IMF agreement allows for a 0.2% of GDP cushion for social subsidies, which could be used if social conditions worsen.
• Weak growth and high inflation: These factors are expected to challenge the government's ability to maintain fiscal discipline.

Market Access and Financing

• Need to regain market access: Argentina must regain access to international capital markets in 2019, which is a key objective of the IMF loan.
• IMF financing insufficient: Even with all disbursements as planned, IMF funds are unlikely to fully cover the country's financing needs.
• Fiscal performance required: Markets are expected to demand several quarters of sound fiscal performance before re-accessing the capital markets.

Key Information

• The government's fiscal performance in H1 2018 was strong, with overcompliance on the primary deficit target.
• The 2019 fiscal adjustment is more challenging, requiring greater emphasis on spending cuts due to weaker revenue prospects.
• Social conditions and economic performance will play a critical role in determining the extent of fiscal flexibility.
• The country's ability to regain market access depends on consistent fiscal performance and improved economic indicators.
• The document highlights the importance of continued fiscal discipline and the potential for market confidence to return with improved economic outcomes.

Charts Mentioned

• Chart 1: Shows revenue and primary spending growth in real terms for H1 2018.
• Chart 2: Illustrates the cumulative primary deficit and targets for 2018.

Legal Disclaimer

• This document is a marketing communication and not independent research.
• It is not intended to be investment advice and is not a prospectus.
• The document may contain simulated performance data and indicative prices.
• It is subject to legal restrictions and may only be used by certain qualified investors.
• BNPP may have conflicts of interest and may engage in transactions inconsistent with the views expressed in the document.

Regulatory Disclosures

• The report is distributed in various countries by different branches of BNP Paribas, each subject to local and EU regulatory frameworks.
• Specific disclosures are provided for the U.S., UK, France, Germany, Belgium, Ireland, Italy, Netherlands, Portugal, and Spain.
• These disclosures emphasize that the information is for professional clients and that certain securities may not be available to all investors.

Conclusion

Argentina's fiscal adjustment in 2018 was successful, but the path to fiscal consolidation in 2019 is more complex. The government will need to implement significant spending cuts to meet the more ambitious deficit target. Regaining market access remains a crucial objective, and sustained fiscal performance will be essential to rebuild investor confidence.